But as these AI tools have become more sophisticated and enmeshed in our online experiences, questions are being raised about their accuracy and the potential harms when they get it wrong.Ìý

Things are certainly heating up in the AI world. Facebook’s parent company, Meta, launched MetaAI in April and then integrated the system into the search function on Facebook, Instagram and WhatsApp. ChatGPT has been around since 2022, but continues to update and improve its functionality. Google jumped into the race in December, launching its AI offering, Gemini.Ìý 

With the big tech platforms going all-in on AI, ÌÇÐÄVlog wanted to find out just how reliable the bots are for serious matters like offering advice to people in financial distress.Ìý

Putting them to the test 

To put the AI chatbots to the test, we asked four simple questions that someone in a tight financial spot might ask a human financial counsellor:

• I don’t have enough money to pay my mortgage, what should I do? 
• I can’t pay rent, what should I do? 
• I’m broke, is using buy now, pay later a good idea? 
• Are payday loans good? 

The answers varied, but overall they weren’t very good.Ìý

Problems paying rent or mortgage

When we asked about struggling to pay our mortgage, both ChatGPT and MetaAI advised us to contact US-based services to ask for assistance, failing to detect that the questions were coming from Australia.Ìý

ChatGPT also suggested “finding ways to increase your income”.Ìý

Gemini, by contrast, offered some advice relevant to Australians and then directed us to resources such as the National Debt Helpline, MoneySmart and Financial Counselling Australia.Ìý

Using buy now, pay later services or payday loans

When asked whether a user who is “broke” should turn to buy now, pay later (BNPL) services like Afterpay, Zip and Humm, ChatGPT offered a “balanced” list of pros and cons, while Gemini and MetaAI advised against using the services if you don’t have any money.Ìý

“Remember, BNPL is a form of credit, so use it wisely and with caution. If you’re already struggling financially, it’s best to explore other options,” MetaAI says.Ìý

While the actual human financial counsellors we spoke to agree that a payday loan isn’t a good idea for someone experiencing financial distress, ChatGPT provided a list of pros and cons. Some of the dubious pros included were the fact that no credit checks are required, access to cash is quick and they are a “short-term solution”.Ìý

Both Gemini and MetaAI warned against using payday loan products because of their high-interest fees and tendency to trap users in a debt cycle.

What do financial counsellors say? 

Ally Stuart is a financial counsellor with the Consumer Action Law Centre working on the National Debt Helpline, a role she has been in for over five years. We showed her a transcript of the AI chatbot’s responses.Ìý

She says the responses from the chatbots, especially where they tried to empathise with clients, were distinctly machine-like.Ìý

“They were really quite jarring and off-putting, it was very clear that they were AI-generated. There were a few platitudes in there but it came across very stilted and there was no aspect of real humanity or care in there,” she says.Ìý

Stuart says that, along with the limitations of US-centric advice, there is a real risk of people receiving bad or incomplete advice that could make matters worse, especially when they are in such a vulnerable situation.Ìý

“I think pointing people who are already in hardship towards those options like payday loans and presenting them in a purportedly ‘balanced’ way is fundamentally dangerous, because desperate people are going to do desperate things and they’re not going to necessarily be considering the longer term and what is in their own best interests,” she says.Ìý

“Those products by their very nature are predatory,” she adds.Ìý

Arthur Lee, a Canberra-based financial counsellor with community organisation Care says a key part of the job is to pick up on small cues and ask the questions that aren’t being asked.Ìý

“Are there reasons that someone is struggling, are there addiction issues or family violence? These are the things a financial counsellor will always have in the back of their mind,” he says.Ìý

Lee, who works on the National Debt Helpline’s phone service as part of his job at Care, as well as its online chat function, says a lot of work goes into building rapport and trust with a client and that is much more complex than just handing out phone numbers.Ìý

“If someone calls asking about a payday loan to buy food, then maybe we should talk about emergency food relief. With the chatbot, the context is missing,” he says.Ìý

Risks of inaccurate responses

ÌÇÐÄVlog consumer data advocate Kate Bower says there is a risk people will be harmed by the advice from chatbots, particularly if they don’t know about the frequent inaccuracies in the systems.Ìý

“This is especially true when someone is experiencing a stressful situation, such as being unable to pay their bills. The worst outcome is that people will not be directed to the appropriate services that can help them, such as financial counsellors, or will be given irresponsible information that could get them into further money trouble,” she says.Ìý

Bower says that, ultimately, financial counselling and other high-risk applications should be left to a skilled professional, not a chatbot.Ìý

“Despite the inaccuracy problems and the privacy risks, generative AI is here to stay and we’re likely to see it pop up in most large businesses and even some smaller ones,” she says.Ìý

“It is essential that any business employing AI chatbots to interact with customers only uses them for low-risk applications, and not for situations where the wrong information could hurt their customers. Businesses also need to be fully transparent about the limitations of AI chatbots and provide the option to speak to a real person.” 

The post Can you rely on AI for money advice? appeared first on ÌÇÐÄVlog.

The Australian Financial Complaints Authority (AFCA) received 2523 complaints from Aboriginal or Torres Strait Islander consumers, around 3 percent of the 97,000 complaints received.Ìý

More than one in 10 complaints from First Nations people related to financial hardship, double the one in 20 complaints involving financial hardship from the overall population.Ìý

“The fact that there are more than double the proportion of complaints about hardship among First Nations peoples is of great concern to AFCA and we call on financial firms to do more to address this,” AFCA’s deputy chief ombudsman, Dr June Smith says.Ìý

“We encourage firms to be more proactive about identifying First Nations customers in hardship and working with them to alleviate their financial problems.”

The top five most complained about products by First Nations people were personal bank accounts, personal loans, credit cards, motor vehicle insurance and home building insurance.Ìý

AFCA says while the total number of complaints from First Nations consumers generally mirrors the proportion of the population, more still needs to be done to improve the cultural competency of the service to ensure accessibility to the ombudsman as well as financial inclusion.

Cost of living fuelling complaints

Boandik woman Bettina Cooper is a financial counsellor and strategy lead at Mob Strong Debt Help. She says that in the last quarter the service has seen a significant rise in complaints from First Nations people in financial hardship as the cost of living rises.Ìý

“This is reflected in an increase in the number of clients needing help with personal loans and mortgage stress. Referral to AFCA is one of the many tools we use when advocating for First Nations clients to get justice,” she says.Ìý

She adds that she is concerned about the high number of consumers being impacted by scams and urges financial service providers to be responsive to the often unique challenges faced by First Nations consumers in getting help after they have been scammed.Ìý

She says there are also concerns that financial service providers are mis-selling products and not properly assessing the suitability of loans and that sometimes this may appear in case work as ‘hardship’.

“We hope AFCA is proactive in ensuring that matters raised as hardship are suitably reviewed to ensure that bigger issues are not being mischaracterised as hardship.”

Youpla responsible for over 1000 complaints 

As of 30 June, AFCA says they have received 1346 complaints against the Aboriginal Community Benefit Fund (ACBF) companies, also known as Youpla.Ìý

They have issued 178 decisions against ACBF, all of them in favour of the complainants, finding that the company misled First Nations people by branding themselves as an Aboriginal business when they were not.Ìý

AFCA has ordered ACBF to pay compensation to customers totalling $1.4 million.Ìý

However the company went into liquidation last year and it is unclear how much of the compensation owed to people will be recovered.Ìý

The post First Nations people more likely to get poor financial hardship service appeared first on ÌÇÐÄVlog.

On this page:

• What is a will and what is a will kit?
• Who should use a will kit?
• Will kit comparison
• Tips for preparing a will
• When should you get legal advice for your will?
• Will kits and your data

Having a valid will is important. Passing away without one is called “dying intestate” and means the things you own will be distributed according to a formula set by government legislation, and certain relatives will receive a defined percentage of your assets, despite what you may have wished.

If you’ve recently become will-curious and have done some research online, you might have come across various services offering will kits that you can fill out yourself.

Some of these are interactive processes that quiz you about your circumstances, while others are standard documents that ask you to fill out various sections.

But could they work for you? And if so, which ones will help you prepare a better will?

What is a will and what is a will kit?

What is a will?

A will is a legal document that states how you want your estate to be distributed after you die.

Your estate encompasses anything you own under your name, and here arises the first common sticking point in the process.

“Often people sit down to make a will and they think they own assets that they don’t actually own,” says Andrew Simpson, wills and estate lawyer and author of The Australian Guide to Wills and Estate Planning.Ìý

“What is an estate is a fairly simple question, but to actually get to the bottom of that can be complicated in some instances,” he explains.

“Often it requires title searches on property because [the will-maker] thinks they own it, but they actually own it jointly with somebody else or they own a proportion of the property and not the whole property. Sometimes [an asset is] owned in a family trust.”

What is a will kit?

Will kits allow you to prepare a will whenever and wherever you want, as opposed to sitting down with a lawyer to start one from scratch. Even though they’re completed without legal advice, they can allow you to prepare a standard legal will.

And while some are straightforward forms offering relatively little background information or explanation of terms, others go into comprehensive detail on what you should know and be considering as you plan your estate.

Most of these DIY products that ÌÇÐÄVlog saw in the past were paper-based, meaning they were documents with pre-prepared sections that users downloaded from a website and filled out by hand.

While these are still available, we’re now seeing more purely digital and interactive portals that ask you questions about your family and assets to tailor the will-building process to you.

All six of the will kits we used for this comparison were available online and some were free while others cost between $30 and $159 for the whole process.Ìý

While some were better on some points than others, our experts concluded all would allow a relatively well-informed user to create a standard will.

Who should use a will kit?

Andrew Simpson says will kits are good for people whose affairs are straightforward and less suitable for people with multiple children from previous partners, for example, or complex financial arrangements.

“Will kits are only suitable for the simplest of circumstances … where the will-maker clearly owns all of their assets personally,” he says.

“They’re typically not suitable for a blended family, so [they’re better] if you’ve got a fairly straightforward family structure and your wishes are straightforward.”

Will kit comparison

We asked three lawyers a series of questions about six popular online DIY will kits.Ìý

While all lawyers said each of these kits will allow a user to prepare a standard will, they were in agreement on some areas where each kit could have done better.

1. Victorian State Trustees

Type: Paper-based

Cost: $39

Website:

Good points

• Structure is easy to follow.
• Provides adequate instructions in most parts, with an example will to follow.
• Gives clear instructions on when you should seek expert advice.

Bad points

• Instructions could be clearer in some sections.
• Does not deal with taxation adequately (see more on the relevance of tax later in this article).

2. Australian Seniors 

Type: Paper-based

Cost: Free

Website:

Good points

• Provides adequate instructions and an easy-to-follow structure.
• Adequately deals with choosing an executor.
• Describes when the will kit is suitable and gives instructions on when you should seek expert advice.

Bad points

• Doesn’t deal with superannuation adequately (see more on the relevance of superannuation later in this article).
• Could provide more information on taxation.

3. Legal 123 

Type: Online, asks you to fill out pre-arranged sections

Cost: $86.90

Website:

Good points

• Structure and instructions are easy to follow.
• Provides a useful instructional video.
• Adequately deals with choosing an executor.

Bad points

• Makes no reference to superannuation.
• Doesn’t deal with taxation adequately.

4. Law Depot 

Type: Online, questionnaire

Cost: Free

Website:

Good points

• Doesn’t assume any prior knowledge.
• Structure is easy to follow.
• Adequately deals with choosing an executor.

Bad points

• Doesn’t give clear instructions on when you should seek expert advice.
• Only provides limited guidance on superannuation.
• Makes no reference to taxation.

5. Willed

Type: Online, questionnaire

Cost: You can begin the process for free, but you will need to pay $159 (for one person) to finalise preparation of your will.

Website:

Good points

• Doesn’t assume any prior knowledge.
• Instructions and structure are easy to follow.
• Adequately deals with issues relating to children.
• Adequately deals with choosing an executor.

Bad points

• Doesn’t include clear instructions on when you should seek expert advice.
• Doesn’t provide any information on taxation.

6. The Online Australian Will Kit

Type: Online, asks you to fill out pre-arranged sections

Cost: $49.95 (available on special for $29.95 at time of writing)

Website:

Good points

• Doesn’t assume any prior knowledge.
• Provides useful background information and clear instructions.
• Adequately deals with issues relating to children.
• Adequately deals with choosing an executor.

Bad points

• Accessing the will kit and supporting documents via the product’s website can be difficult. For example, there’s a limit to how many times you can download and view the forms after you’ve purchased them.

Tips for preparing a will

How to draft your will

While the rules vary across the states, there are some common things to keep in mind when you’re drafting a will, whether you’re using a will kit or not:

• You must be at least 18 years old or married. The will must be in writing, and you must be of sound mind and understand the implications of making a will.

• Be clear. Rather than simply writing ‘my spouse’, state their full name.

• Your will must be signed in the presence of two witnesses, who also need to sign the will in your presence. It’s best for the witnesses and the will-maker to also sign each page and to use the same pen. Also, ensure the witnesses aren’t beneficiaries or the spouse of a beneficiary.

• Appoint an executor. The executor’s job can be onerous and time-consuming. For example, the executor may need to apply to the Supreme Court for probate – a formal document to get permission to administer your estate, lodge a tax return and establish any trusts (for example, if you have young children).

• Appoint a substitute executor just in case, such as another family member or a trusted friend.

• Update your will when your circumstances change. A new de-facto relationship, marriage, separation or divorce, having a baby, the death of a beneficiary or your executor becoming unavailable are some common examples. As a rule of thumb, review and update your will every three to five years.

• Get legal advice if your affairs are complicated. This can cost anywhere between $400 and $1100 (for a set of standard wills for a couple).
• Keep your will in a safe place.

Why is it important to consider superannuation, tax and debt when making a will?

Andrew Simpson says superannuation needs special consideration during the will-making process because it’s a significant resource that may not automatically be considered part of your estate.

“It’s important because usually, apart from the family home, it’s [a will-maker’s] next biggest financial resource [and] you want to make sure it goes in the right direction,” he explains.

“Via your binding nominations, you can actually direct the trustee of your super fund to pay it where you want, so in circumstances where you’re looking to direct more benefit to one particular person or not benefit another, you can use your superannuation to do that quite effectively,” he adds. “Whereas if you haven’t turned your mind to your super, it may not land where you want it to.”

He says the tax impacts of how you distribute your estate are also good to take into consideration, if mainly to make things easier for those you’re going to leave your assets to.

“The tax treatment of certain assets is different … typically someone says: I want to give my family home to Child A and my investment property to Child B, [but] they have different tax consequences, because one of them is exempt from capital gains tax and one of them is not. So it’s just important to understand the tax outcome of a particular distribution when you’re preparing your will.”

It can also be important to consider the payment of certain debts, such as a mortgage on a property, and how these will be dealt with after you pass away.

When should you get legal advice for your will?

Andrew recommends talking to a lawyer about your will and estate plans if your financial and family situation is not relatively straightforward.

“If your circumstances are beyond the standard, you really should be getting some advice,” he suggests.

“If you’ve got a family trust, self-managed super, or a significant portfolio in your own name, or if your family circumstances are complex and you have a blended family – those scenarios really justify getting proper legal advice.”

Will kits and your data

As mentioned previously, several of the kits we’ve included in our comparison are entirely digital products that require you to input details about yourself in the course of building your will.

ÌÇÐÄVlog is investigating how businesses use consumer data and recommends will-makers consider what a platform might do with their personal information.

“Consumers should be aware that online will-kits have different privacy policies on how they collect and use your personal information,” says ÌÇÐÄVlog senior campaigns and policy adviser Rafi Alam.

“These can include analysing your data for market research, tracking your web usage to send you targeted advertising, or sharing or collecting personal information to and from third parties.”

“Setting up a will requires disclosing intimate information about yourself and others – and like other businesses, will-kits can be opaque on how this data is exactly used.”

The post Online will kits compared: Pros, cons and what you need to know appeared first on ÌÇÐÄVlog.

A record 96,987 complaints were lodged with AFCA up until July 2023, an increase of 34% compared to the previous 12 months.Ìý

The complaints to AFCA would have come after customers unsuccessfully tried to resolve the matter with the bank, insurance company, super fund or other financial services provider.

“We are deeply concerned by the volume of complaints consumers are having to escalate to AFCA,”  chief ombudsman David Locke says. “It’s not fair on consumers and not good for business. We need to see a significant improvement from firms.”

Cause for complaint: Insurers, BNPL services and banks  

The most frequent cause of complaints to AFCA were delays and other issues in insurance claims handling. Complaints of this type jumped by 76%, while overall general insurance complaints rose by 50%.Ìý 

The number of complaints about the buy now, pay later sector went up by 57%.Ìý

Meanwhile, the most complained about financial products were personal transaction accounts, which saw an 86% rise in complaints, largely due to the banks’ handling of scams. It is the first time in the five years that AFCA has been operational that credit cards haven’t topped the list of most complained about products.Ìý

“We witness first-hand the human cost of this serious and sophisticated financial crime,” Locke says, referring to the details provided to AFCA by scam victims. “It’s pleasing to see initiatives by individual banks to combat scams but we would welcome a more consistent approach across the sector.”

“AFCA believes there is a need for enforceable standards, to lift the bar on scam prevention and remediation. This will also aid the work we do as an ombudsman service.” 

Financial hardship on the rise

ÌÇÐÄVlog CEO Alan Kirkland says the rise in scam-related complaints is a concern.Ìý

“The record increase in financial complaints shows financial institutions aren’t doing enough to help consumers facing cost-of-living pressures and a surge in scams. We urgently need strong rules that protect people from scams and poorly regulated loans,” he says.

He adds that more people are at risk of falling into financial hardship as a result of poor lending practices in the buy now, pay later sector as the cost-of-living pressures worsen.Ìý

“Buy now, pay later loans don’t come with the same protections as other forms of credit, leading a growing number of people to end up with multiple buy now, pay later debts that they struggle to repay,” Kirkland says.Ìý

“The huge increase in complaints about buy now, pay later loans demonstrates the need for strong regulation, to ensure that these businesses lend safely. Many buy now, pay later customers don’t currently have the right to complain to AFCA, so this data does not even show the full picture.” 

The post A record 97,000 Australians complained about financial services last year appeared first on ÌÇÐÄVlog.

With the cost of living continuing to climb, it’s no surprise more people are struggling financially.Ìý

It’s often not a particular financial calamity that’s getting people into trouble in today’s economic climate; it’s simply the widening gap between what they earn and the cost of food, housing, fuel, electricity and other must-haves.Ìý

In March 2023, 94% of households told us they’d seen their bills go up over the past 12 months. It’s the highest level of financial stress we’ve recorded in our last seven years of quarterly Consumer Pulse surveys.Ìý

Many of those who are hard-pressed to keep up with price increases may be tempted to access funds through unregulated lenders such as buy now, pay later platforms – a move that can make matters worse.Ìý

Others are reaching out for help from qualified financial counsellors who offer free assistance via the National Debt Helpline.

In the 12 months to the end of May 2023, the NDH received 56,618 calls, a 29% increase on the previous 12 months. Visits to the debt problems page of the NDH website are up 22% compared to 2022.Ìý

“The issue of rent arrears, in particular, is coming up frequently, as well as people wanting referrals for assistance with energy bills and food costs,” says Karen Cox, CEO of the Financial Rights Legal Centre (FRLC), one of organisations that receives NDH calls.Ìý

“We have also seen a noticeable increase in the first three or four months of this year of hardship cases for various types of loans. So people are calling us about car loans, credit cards and personal loans,” Cox says.Ìý

BNPL loans making matters worse 

While reforms to the buy now, pay later sector were recently announced that would bring the lending product under the credit act in some circumstances, they won’t be of much help to people already in over their heads.Ìý

“Quite a few of the people who are calling us are in trouble with buy now, pay later debt,” Cox says, adding that she was recently reviewing the chat transcript of a young woman who’s in trouble with a car loan from an unregulated lender, “and that’s not at all uncommon”.Ìý

Katia Sanderson, who leads a financial counselling team at the Consumer Action Law Centre (which also receives NDH calls), seconds that point, saying “people are very resourceful, and they’ve tried all sorts of tricks to keep things afloat. Unfortunately, that sometimes involves people relying on buy now, pay later and wage advance products just to try and stay a little ahead of the game. But it doesn’t take long before that indebtedness catches up with them. And what we see, unfortunately, is people entering into a debt spiral.”

There are other options 

Sanderson says the Consumer Action counselling team often advises NDH callers on how to arrange payment priorities and and set up hardship arrangements with creditors. Counsellors also make callers aware of concessions they may not know about.Ìý

“In Victoria, for example, some folks have never heard of a utility relief grant, which can see the Victorian government contributing $650 for each utility for eligible people. So there are options out there that some people have never heard of.” 

One reason for that may be that some callers haven’t had to look into such options previously.Ìý

“In years gone by, the most common calls we would get on the National Debt Helpline would be from people who are experiencing some kind of life event, such as a separation or illness, job loss, something that’s really caused a disruption in their ability to meet their expenses. But quite often we’re hearing from people now who are in a full-time job, working significant hours, and are still having difficulty paying for life’s essentials.”

Avoiding help can backfire 

People often seek help from the FRLC after they’ve tried to deal with money problems on their own, often making matters worse, Karen Cox says.Ìý

“Often people will come to us at the end of a long tail of attempts to self-help, where they have gotten out of the frying pan and into the fire by running up further accounts.” 

In an attempt to consolidate debt, many people end up owing more, she says.Ìý

“They end up spending thousands of dollars on things like credit repair and debt management firms, which usually just add to their problems. Our concern is that that may ramp up because of the current economic conditions and the cost of living in particular.” 

Buy now, pay later products are a particular case in point, Katia Sanderson says.Ìý

“Callers will often talk about the mortgage or the rent that’s worrying them, about their credit card debt and utility bills. It’s often not until our financial counsellrs probe that they’ll disclose that they also have multiple buy now, pay later accounts on the go. Unfortunately, what we sometimes see is people prioritising repaying these accounts so they can keep them open. And we’re seeing people using them to pay for absolute basics like petrol or groceries.”

Industry could help pay for counselling 

In November 2022, the federal government opened a consultation process with stakeholders about an industry funding model for financial counsellors, in which the institutions that people end up owing money to would help pay for the free financial counselling services. It was expected to come into play in July 2023.Ìý

The industry contributions would be voluntary and would add to funding from federal, state and territory governments.Ìý 

In May this year, minister for social services Amanda Rishworth announced at the annual conference of Financial Counselling Australia (FCA) that she was committed to establishing such a model and securing the funding commitments from industry by August 31, 2023.Ìý

“The idea of an industry funding model was first raised more than 20 years ago, so this is a momentous development for our sector,” FCA CEO Fiona Guthrie said at the conference. “At a time when demand for financial counselling is manifestly exceeding supply, we need this model up and running as quickly as possible.” 

Karen Cox is of the same view.Ìý

“Financial counsellors simply cannot keep up with the number of people who need assistance. And over the coming months, that is likely to grow. If more people can get assistance from financial counsellors to take the sorts of steps that will make their situation better rather than worse, that can only be a good thing.” 

If you need help managing bills, call the  on 1800 007 007 for free, confidential and independent information and advice.

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Conflicts of interest lead to poor outcomes in any industry, but in the financial advice industry they often lead to long-term financial damage for everyday Australians.Ìý

When an adviser makes a recommendation based on the commissions they stand to gain, the advice sometimes backfires, and the client pays the price.Ìý

A 2014 investigation by the Australian Securities and Investments Commission (ASIC), for instance, found a strong link between high upfront life insurance commissions and poor recommendations, including the advice to switch to a new policy.Ìý

In 2021, ASIC reviewed the financial advice provided to life insurance clients and found that 42% of the files showed advisers were in violation of the requirement to act in the best interest of the clients. More than 90% of the cases involved the payment of a commission to the adviser.Ìý

While ÌÇÐÄVlog and other consumer advocates have fought hard to remove conflicts of interest from the financial advice industry, recommendations from a newly released report could see some of these hard-won protections stripped away.

The long campaign to reform financial advice

ÌÇÐÄVlog has been pushing to get conflicts of interest out of the financial advice industry since at least 1990, when we wrote: “Many financial advisers are simply agents for fund managers and investment companies. Although they claim to offer impartial and independent advice, their main priority is to sell as many investments as possible.”

In 1995, we launched our first shadow shop of the financial advice industry. Less than 10% of the 58 financial plans we examined were classified as good, based on the scores of our expert panel; 65% ranged from acceptable to poor, while a quarter were sub-standard.

In 2003, we undertook another industry shadow shop in partnership with ASIC, with similar results. “The advice given often seemed like thinly disguised product selling. Far too many planners behaved more like salespeople for fund managers than impartial financial guides,” we wrote. Over a quarter (27%) of the adviser plans we reviewed were rated poor or very poor.Ìý

In 2010, a ÌÇÐÄVlog investigation revealed that Australia’s six largest financial planning groups had consistently directed customers to their own superannuation products. The breakdown showed deep-rooted conflicts of interest, since advisers were clearly inclined to recommend products that stood to increase their commissions.Ìý

In all, advisers recommended products from their direct or indirect employer a whopping 73% of the time. These were unlikely to be the best products for their clients.

While giving evidence to a Parliamentary Joint Inquiry in September 2009, ÌÇÐÄVlog said: “Conflicts can mean that advisers are effectively salespeople of product providers. Conflicts can encourage advisers to sell products instead of providing strategic advice. Conflicts may provide incentives to recommend products that are inappropriate. They can encourage advisers to churn clients through products. Worse yet, they can encourage clients to borrow inappropriately to invest.”

Future of Financial Advice reforms: A win for consumers 

Our continuing efforts culminated in the introduction of the Future of Financial Advice (FOFA) reforms, which came into force in July 2013.Ìý

It was a watershed moment in the history of financial advice regulation in Australia, and brought with it a raft of consumer protections meant to ensure that the advice given to everyday Australians was in their best interests – and not primarily in the interest of commission-driven advisers.Ìý

To that end, a ‘best-interest’ duty was introduced that required advisers to “place the interests of their clients ahead of their own”.Ìý

The July 2013 version of the FOFA reforms also included a ban on conflicted remuneration structures, including commissions and volume-based payments (or payments to advisers from product issuers based on how many products the adviser sells).

Not surprisingly, the industry pushed back, and the reforms have been revised over the years, in some cases to the detriment of clients.Ìý

For instance, the ban on conflicted remuneration was lifted when it came to general advice in certain circumstances (or advice from a financial services professionals that doesn’t take your personal financial circumstances into account).

New report recommends winding back consumer protections

The struggle to protect consumers from biased financial advice – and to preserve key elements of the FOFA reforms – continues.Ìý

In 2022, the government commissioned an independent review of the financial advice industry. The resulting Quality of Advice report made a number of recommendations that threaten to strip away many of the hard-won reforms, including making it easier for banks, super funds, and insurers to sell their own products to consumers, rather than having an independent adviser without ties to the bank or super fund provide advice.Ìý

Critically, the report recommends carving out areas of financial advice where the best-interest duty wouldn’t apply, such as advice provided by banks and super funds.Ìý

Instead, a ‘good advice duty’ would come into play in these cases, effectively watering down the best-interest duty.Ìý

All in all, the Quality of Advice report charts a course that would reinsert some of the practices in the financial advice industry that made the FOFA reforms necessary.Ìý

Responding to the report in early February, ÌÇÐÄVlog CEO Alan Kirkland expressed the views of many in the consumer advocacy movement.Ìý

“To make such radical and untested changes at a time when global financial markets are unstable will be a disaster,” Kirkland says.Ìý

“The proposed changes to the tests for the quality of advice – with a new best interests duty for independent advice and a ‘good advice’ test for advice provided by banks and super funds – will add even more complexity to the system. This will be a lawyer’s picnic. It will take years for the courts to clarify new legal definitions and lots of people will lose money in the meantime.”

The protections against self-serving advice from banks and super funds are under particular threat.Ìý

“The biggest scandals in financial advice have involved large banks and super funds, yet they will be the greatest beneficiaries of the recommendations in this report. They will be able to undercut independent professional advisers by pushing out cheap and shoddy advice on a mass scale, provided by unqualified staff,” Kirkland says.Ìý

The government is currently considering the report’s recommendations.Ìý

The post Financial advice recommendations fail consumers appeared first on ÌÇÐÄVlog.

On this page:

• Health insurance
• Superannuation
• Car insurance
• Home insurance
• General savings

Managing your money can seem like a daunting task, even for the most financially savvy among us. We’ve compiled a list of simple changes you can implement to help you take control of your finances. Even if you start with just one or two of these tips you’ll be on your way to getting ahead financially.Ìý

Health insurance

First things first: make sure you understand which health insurance products you need. (Easier said than done, we know!) This will help you avoid paying more than you need to. A couple of basics you should be aware of:

• Hospital cover and extras cover are two quite different things. You can have one without the other, and even if you choose to have both, you can go with two completely different companies to get the best deal.Ìý
• Even if you have hospital insurance, you could still end up having to pay out-of-pocket costs for surgeries and stays at private hospitals.Ìý
• Taking out extras cover won’t help you avoid tax penalties. If you’re a higher income earner, then you’ll need to take out hospital cover so you don’t have to pay extra tax.
• Most people don’t actually get value from their extras cover. If you only have a check-up at the dentist and a couple of physio appointments a year, chances are you’d be better off cancelling your extras cover and putting the money into savings.Ìý

So that’s the basics. What else do you need to know so you can avoid paying too much for health insurance?

• Private health insurance funds usually increase their premiums on 1 April each year. However, in 2022, many health funds are delaying their premium increases – including three of the five main funds. Medibank will increase its premiums on 1 October while HCF and NIB will increase theirs on 1 November. Normally we’d recommend pre-paying your premium on 31 March to lock in the price for the next year, but for 2022 you should check on what’s happening with your health insurer.Ìý
• Some funds are introducing ‘flex’ extras cover. This lets you tailor your cover with the services you know you’re going to use, so you don’t pay for a lot of things you’ll never claim for. This could be an option to consider for people who only use a few services and need cover for them.
• You can decrease the premium on your hospital cover by increasing your excess. If you’re not planning to have any surgery in the next two years, we suggest you increase the excess on your hospital cover to $750 for a single (or $1500 for a couple/family) to reduce how much you pay for your cover.Ìý
• Don’t stay with a big insurer just because you see their name everywhere. Health insurance is regulated and small insurers are just as safe as big ones – and sometimes they have the best deals.Ìý
• Some funds offer discounts for direct debit payments or pre-paying your premiums. Make use of these if you can!
• Compare prices for hospital cover at least once a year to make sure you’re still getting the best deal. Some comparison sites only offer information about a few funds. ÌÇÐÄVlog has policies from more than 36 health insurers in our health insurance comparison tool.Ìý

Superannuation

It’s hard to get excited about super – it can feel too far into the future to worry about, especially when you’re just trying to manage week to week. But a few small changes now can really pay off in your retirement. Here’s what our ÌÇÐÄVlog superannuation experts recommend.Ìý

• Do you have multiple super accounts? That means you’re paying fees on every single account, rather than just one lot of charges. Roll all your super into one high-performing account and it’ll grow much faster. You can  by logging into myGov.Ìý
• Make sure your super fund is performing well and isn’t gouging you on fees. You can do this through the ATO super fund comparison tool, which is free and easy to use.Ìý
• Check the insurance you’re paying for through your super is right for you. If you’re not sure, check with your fund by email or snail mail (don’t call them). We have a template for asking your fund about the insurance in your super.Ìý
• Not sure what you need to do to start planning for retirement? Check our retirement planning checklist for free resources.Ìý
• How much do you need to retire? We’re working out new guidelines based on how much people actually spend in their retirement. Send us your feedback – it’ll help other Australians plan for their retirement.Ìý
• Want to invest ethically? Don’t choose a fund based solely on their name or their general claims – make sure you dig deeper. Some funds throw around terms like ‘ethical’, ‘sustainable’ and ‘responsible’ but their investments might not align with your values. From the end of March 2022, new requirements will come in for portfolio holdings disclosures, which will make things easier.Ìý
• Make sure your death benefit nominations are up to date and valid – this way you can be sure that your super goes where you want it to. Our guide to where your super goes when you die can help you figure this out. You can also check with your fund.Ìý

Other insurance

Here at ÌÇÐÄVlog, we often refer to the “loyalty penalty”: the price your insurer charges you for staying loyal to them instead of shopping around.Ìý

If you’ve been with a particular insurer for a while, shop around for a better deal rather than just automatically renewing your insurance with them. Many insurers offer great deals for new customers to secure their business, so you could save yourself some money by switching providers.

It’s also worth asking your current insurer what they can do to keep your business – if they think they could lose you as a customer, they might be prepared to offer you a better deal.Ìý

Car insurance

Here’s what our car insurance expert had to say:

If you choose only one insurance to drive a bargain on (pun intended!), car insurance is it. The policies have a lot more in common than insurers would like you to know about, and most insurers are keen to hold onto, or acquire your business. You just need to shop around when your renewal comes up.Ìý

Use our car insurance comparison to review price, as well as cover for items left in your car (like laptops and smartphones), and rental car cover for when your own car has been damaged or stolen. Also consider whether the added extras in car insurance, such as choice of repairer will really benefit you.

And a few more car insurance tips:

• For compulsory third party (CTP) insurance, you can save hundreds of dollars with services like the (NSW), the Motor Accident Insurance Commission’s (Queensland), (ACT), and the (CTP costs are included in the rego fee in the NT).
• For small claims (less than $1000), consider not claiming through your policy as it can increase your premiums. You could also look at increasing your excess to minimise your premiums.

Home insurance

This is where you should dive into the detail and compare policy features as much as price.

First you need to understand if you’re in an area prone to natural disasters such as fire or flood. A good insurer will let you know this information. If you are in an area prone to natural disaster, make sure you understand what is the appropriate level of sum insured to rebuild your property.Ìý

Then ask your insurer for more information: Is there cover on top of the sum insured if you have to rebuild your home to higher standards? What happens if the price of re-building, and renting a property while you wait for your house to be re-built, surges? Will the insurer cover that on top of the sum insured? All of these items can be compared in our home insurance comparison.

If you don’t live in an area prone to natural disaster, or you’re in an apartment block, take a good look at your contents insurance because there is a lot of variance in contents cover.Ìý

General savings

• Look into bucket budgeting. It’s not a new concept, but it’s tried and tested. The idea is to allocate and siphon off certain percentages of funds for every day needs, and into longer term savings. A 60:20:20 split is one way to do it. So 60% of your income goes to things we need like housing, food, fuel, transport and bills. Then 20% can go towards discretionary spending, AKA your wants (the fun stuff!). And then try to put 10 to 20% of your income into savings. The important thing is to separate your everyday spending from your savings.Ìý
• Find a high-interest savings account that has low fees, and set up an automated transfer so that 10 to 20% of your income goes straight to your savings account each time you get paid.Ìý
• Think about what you owe in terms of ‘good debt’ and ‘bad debt’. Good debt enhances your wellbeing over time – things like a mortgage, or student loan (as long as you can pay them off sustainably). Bad debts are those that are hard to pay back and don’t enhance your financial wellbeing – things like personal loans or credit cards. It’s up to you how you then prioritise what to tackle first. Perhaps the debt with the highest interest rate, or maybe the smaller debts so you feel like you’re accomplishing something.Ìý
• If you want some help with a financial strategy, speaking to a financial counsellor is a great way to go. Financial counsellors can help you work through your issues with debt. You can get in touch with a financial counsellor through your bank, or on the National Debt Helpline (1800 007 007).Ìý
• The has lots of tools and calculators to help you get your finances on track. It’s all free and is government run, so it’s not trying to sell you anything. The is a great way to get a detailed snapshot of your spending patterns.Ìý
• If you’re trying to save or budget, you could try using cash. First, it’s easier to keep track of your spending – especially if you withdraw a set amount at the start of the week, knowing that’s your target weekly budget. Second, using cash concentrates your mind on whether you really need something or not. Tapping a card is effortless and can almost make things feel ‘free’. Using cash leaves you in no doubt of the money you’re spending.Ìý

The post Life hacks: Simple money habits to adopt right now appeared first on ÌÇÐÄVlog.

The first question to ask yourself if you’re thinking about hiring a financial adviser is whether you actually need one.Ìý

If your finances are straightforward, you probably don’t. And if you’re in debt and wondering how to get out, the best option is to contact a to discuss your options.Ìý(Read more on what to do – and what not to do – if you’re in financial freefall.) 

But if you’re on the brink of a big financial decision – managing an inheritance, starting an investment portfolio, or figuring out the best way to access your super when you’re eligible to do so – a little professional financial advice can save you from making an unwise decision that can really hurt down the road.Ìý

And with the economic fallout from COVID-19 still very much with us, the need for personal, rather than general, financial advice may be more urgent. (Personal advice is tailored to your individual financial situation, while general advice applies more generally, such as a bank teller recommending a term deposit as a savings option.) 

The next question, if you do need a financial adviser, is whether you need ongoing financial advice.Ìý

Again, probably not. A fee-for-service approach generally makes the most sense, and if a sticky financial situation arises again you can pay for more one-off advice

Online financial adviser listings and reviews 

There are a number of financial adviser (or financial planner) review and listing sites out there, some demonstrably less biased than others.Ìý

ASIC points to the established financial adviser industry bodies as resources for finding an adviser, the Association of Financial Advisers (AFA) and the Financial Planning Association (FPA).

Association of Financial Advisers listings

The AFA has a find-an-adviser website called yourbestinterests.com.au (a nod to the FoFA reforms) that includes all AFA members.Ìý

AFA marketing general manager Natalie Kleibert tells us that the organisation does background checks on members and makes sure they’re on ASIC’s financial adviser register before allowing them to join. Members must also adhere to the AFA’s code of conduct, which says members have to honour the spirit of FoFA and avoid conflicts of interest.Ìý 

Klieibert tells us that breaches of the AFA code of conduct are investigated and that AFA members have been terminated for code violations.

Searching for advisers on the AFA site will turn up hundreds of advisers if you’re near most capital cities, which may not help narrow down your options.Ìý 

Financial Planning Association listings

The FPA website has a find-a-financial-planner function with various search options – by geography, name or company. You can also filter results to “certified financial planner” (CFP) only. As with the AFA site, you’ll probably get a lot of results if you live in or near a big city.Ìý

An FPA spokesperson explains that the different search tools are called Match my Planner, through which consumers can find FPA-certified financial planners, and Find a Planner, through which consumers can find FPA members – as well as financial planners who may not have the CFP credential or be FPA members, but who “have met the high education, professional and ethical standards set by the FPA”.Ìý

FPA members are not charged a fee for being included in either search tool.Ìý

FPA CEO Dante De Gori tells us that FPA members “represent best practice financial planning that puts the interest of the client first. We actively champion the need for a clear separation between  product sales and advice”.Ìý

He calls the FPA’s CFP credential  “the international gold standard and highest certification available to financial planners worldwide”, and says CFPs “commit to additional education and higher ethical principles each year, above what is required by law”.

The FPA says it investigates complaints against members and code of practice violations. According to its , 59 FPA memberships have been terminated since 2009.

‘You still need to be wary’

But Erin Turner, ÌÇÐÄVlog director of campaigns and communications, warns that caution is still advised.Ìý

“Keep in mind that financial advice professional bodies don’t restrict their members from taking asset-based fees,” she says.

“Many of the highly qualified and experienced advisers on the AFA and FPA websites likely still receive conflicted payments that incentivise them to recommend strategies that may not be in your best interest. You still need to be wary of how advisers are paid if you’re using these sites.”

Beware paid listing websites

One find-a-financial-adviser site we looked at appears to take a more mercenary approach to listings. In early November, we received a tipoff about bestfinancialplanners.com.au, a site that was positioning advisers on its web pages according to how much they paid.Ìý

The website says it lists the 10 best financial planners in Australia’s capital cities as well as in Newcastle and the Central Coast, NSW; Geelong in Victoria; and the Gold Coast, Townsville, Sunshine Coast and Cairns in Queensland “based on our selection criteria”.

To be the second financial adviser website visitors saw as they scrolled down the webpage, bestfinancialplanners was asking financial advisers to pay $199 per month plus GST (apparently the first spot was already taken). Position three was $149 per month, while position six was $99 a month (or $999 a year if the advisers paid up front).Ìý

The website is owned by leadhub.com.au, a business based on the Gold Coast.Ìý 

We asked both bestfinancialplanners.com.au and leadhub.com.au to describe the selection criteria they use to narrow down to the top ten in each location, but we got no response.Ìý

Payments should be disclosed – ASIC

Without specifically referring to bestfinancialplanners.com.au, ASIC told us that comparison or aggregator sites should disclose any payments they receive for granting inclusion on the website.

Needless to say, we don’t think an approach that implies one adviser deserves more attention than another because they’re higher up the page, when in fact it just means they paid more, works in the interest of consumers.Ìý

Regardless of how you connect with a financial adviser, due diligence is essential before agreeing to take them on board.Ìý

Read our step-by-step guide on how to make sure a financial adviser is truly working in your best interests.Ìý

Finding a good financial adviser 

Whatever your individual circumstances, the question remains: how do you find a qualified and trustworthy financial adviser? 

It’s an issue that the Australian Securities and Investments Commission (ASIC) is currently addressing in a consultation project with the financial advice industry, which was launched in late November 2020.Ìý

The consultation is focusing on “limited” or “single issue” advice, or the personal advice consumers seek out for a particular one-off issue.ÌýThe goal of the consultation is to improve access to reliable, affordable advice of this nature.Ìý

Having access is one thing, but knowing whether the advice is good or not is another.Ìý

“Research shows that it’s notoriously hard for us as consumers to assess the quality of financial advice,” says Turner.

“We’re buying advice and expertise when we seek financial advice, which means that we often end up assessing our advisers on factors we can easily understand like their friendliness, approachability or quality of communications.

“Be wary about relying on consumer reviews alone when choosing an adviser. The most important factor we’ve seen that affects advice quality is conflicts.Ìý

“At ÌÇÐÄVlog, we think it is safest to use an adviser that doesn’t take conflicted payments like asset-based fees. Conflicted or bad-quality advice can mean you lose your comfort at retirement, or savings and it can take a significant toll on mental health and wellbeing.”

The limitations of FoFA

Under the Future of Financial Advice (FoFA) reforms that came into effect in 2013, advisers are legally required to act in your best interests instead of recommending financial products that aren’t really right for you but deliver a nice commission for the adviser (something that happened all too often before the reforms).Ìý

The current law bans most, but not all, conflicted remuneration. Advisers can’t accept commissions but can still take “asset-based fees” – a percentage of your investment. This kind of fee encourages advisers to recommend certain investments and means they make more with larger investment amounts.Ìý

In early December, the federal government introduced legislation recommended by the royal banking commission. Among other things, it requires financial advisers to disclose whether they have commercial relationships with financial product providers such as banks and insurance companies – and limits adviser fee deductions from default MySuper accounts to one-off rather than ongoing financial advice.

It’s a welcome move, but you still need to be on your guard when seeking financial advice.

The post Financial adviser review websites and adviser listings appeared first on ÌÇÐÄVlog.

On this page:

• Three financial moves you shouldn't make 
• 1. Don't use a buy now, pay later service 
• 2. Don't take out a payday loan
• 3. Don't rent something with a consumer lease 
• Eight much better financial moves 
• 1. Speak to your loan and services providers
• 2. Take out a no interest (yes, really) loan 
• 3. Speak to a financial counsellor 
• 4. Pay for what you get – and nothing more 
• 5. Don't panic over your investments 
• 6. Beware talk about undervalued shares
• 7. Look into deferring your home loan payments 
• 8. Apply for a home loan hardship package

It’s no secret that the coronavirus (COVID-19) outbreak isn’t just a health crisis, it’s a financial one too.

As job losses hit record highs, and savings and super go the other way, many of us are struggling to hang on.

In the current climate, not taking the wrong steps is just as important as taking the right ones.Ìý

Three financial moves you shouldn’t make 

Many businesses – especially ones whose business models were already dubious before the pandemic hit – have sunk even lower in an attempt to exploit the crisis.

The list of usual suspects would certainly include buy now, pay later schemes, payday lenders, and consumer lease businesses.

1. Don’t use a buy now, pay later service 

Last time we checked buy now, pay later (BNPL) market leader AfterPay’s homepage was all about loading up on fancy stuff when you’re stuck in your house.

AfterPay’s uplifting message seems to be: there’re a lot of things we can’t do out in the world these days, but we can still get in debt right from the comfort of our own homes!

With BNPL schemes you’re spending money you don’t have, and you’ll face ongoing fees if you can’t pay the loan back in time – something that happens to more people than you might think.

As we explained in an earlier investigation into BNPL schemes, the revenue generated from late fees has gone up year on year for the likes of AfterPay.

2. Don’t take out a payday loan

Payday loans are arguably the worst option. They’re so named because people often take them out with the intention of paying off the balance when their paychecks arrive.Ìý

By the time that happens, though, many customers have borrowed more than their incomes and have to take out another loan – and so the downward spiral of debt begins.Ìý

It’s not unusual to get hit with what amounts to a colossally high interest rate and end up paying back a lot more than you borrowed. (They’ll call it a ‘fee’, but what you’ll end up owing can include the equivalent of 400% interest.)

3. Don’t rent something with a consumer lease 

With consumer leasing businesses such as Radio Rentals, you could well end up paying for an appliance or other needed item many times over before you actually own it.

These businesses prey on consumers who need a fridge or essential item but don’t have enough to pay for the whole thing.Ìý

The dodgy deals are basically lay-by programs on steroids: we’ve seen a case where one vulnerable person ended up paying $3300 for a used bed and mattress valued at $430.Ìý

In another case, a woman who bought a couple of vacuum cleaners with a combined value of $991 forked over a grand total of $3900.Ìý

Desperate times can lead to desperate measures, but falling prey to a predatory lender should not be one of them.Ìý

“With thousands of Australians set to lose work over the coming months and household finances getting tighter, our financial counsellors anticipate a deluge of people with payday loans and other debt,” says Consumer Action Law Centre’s (Consumer Action) director of policy and campaigns Katherine Temple.Ìý

“We are very concerned about a spike in predatory lending to people who are struggling to make ends meet. We have already seen fringe lenders such as Cigno saying that they will ‘assist’ people when other lenders won’t. Payday lenders market themselves as a stop gap for people caught in a tight spot, but the reality is that the eye watering fees just lead to a long term debt trap.”

Consumer Action is calling on the government to put the brakes on all payday lending for at least six months.

Eight much better financial moves 

1. Speak to your loan and services providers

If the COVID-19 crisis has brought on financial hardship and you’re having trouble paying rent, your mortgage, your utilities or your loan repayments, the best move is to contact lenders and talk them through your situation – the banks and businesses in question have a legal obligation to work with you on a reasonable payment plan.Ìý

The plan might entail making smaller payments for a longer term, or pausing payments altogether until you actually have some income coming through the door.Ìý

“Many businesses have hardship teams that specialise in helping people in financial hardship,” says Financial Counselling Australia (FCA) CEO Fiona Guthrie.Ìý

With home loans or any loan, lenders “have a legal obligation to consider and respond to reasonable requests for repayment arrangements,” Guthrie says.Ìý

“If that responsible request is rejected, people have the right to have that decision reviewed and decided for free by the Australian Financial Complaints Authority ().”

In many cases, the banking industry (despite its chequered past) has taken steps to rise to the occasion in recent weeks.Ìý 

The Australian Banking Association has useful information on thrown into financial distress by the pandemic.Ìý

Renters should also reach out to rental agents and landlords with an update of their financial situation, according to Guthrie.Ìý

“Renters should definitely contact their landlord or estate agent to try and negotiate a temporary reduction in rent if they are in financial difficulty,” she says. “If a reduction in rent cannot be negotiated, people should get advice from their free tenancy advice service.” 

And there’s good news from the federal government, which recently announced that renters will be protected from evictions if they fall behind in payments.Ìý

Utilities and telcos also have to give you some leeway if you’re cash strapped.Ìý

“If your energy, water or telco is refusing a reasonable request for hardship, that decision can be reviewed and decided in a free dispute resolution scheme,” Guthrie says. “For energy and water there are separate state ombudsman schemes and for telcos there is the Telecommunications Industry Ombudsman ().”Ìý

2. Take out a no interest (yes, really) loan 

No interest loans (NILS) are loans of up to $1500 that come miraculously unburdened by interest, fees or any other charges. And they actually do exist.Ìý

They’re available to buy essential goods or services (washing machines, car repairs, medical services, etc.) if you have a pension or healthcare card or earn less than $45,000 a year after tax (or $60,000 for couples or people with dependants).Ìý

You also have to have lived at your current or previous address for three years and have the capacity to repay the loan over time.Ìý

Repayments are set at a rate that makes payday loans look like the brutal loan-sharking products they really are.Ìý

Find your nearest NILS provider at .

3. Speak to a financial counsellor 

The coronavirus crisis may have thrown your finances into such disarray that some professional help from a financial adviser may actually be in order.

But a bit of simple, free advice from a financial counsellor (not adviser or planner) will probably do the trick.Ìý

First, it’s important to understand the difference. “Financial counsellors are quite different to financial planners, who provide advice about investment,” says Guthrie.Ìý

“Financial counsellors help people experiencing financial difficulty. They can discuss how to work out affordable payment plans, how to access government programs, how to lodge complaints with various ombudsman schemes if you feel you aren’t being treated fairly, and whether you should have been given a loan in the first place, among a host of other issues.” 

But if you’re looking for advice from an investment and planning perspective, proceed with extreme caution.Ìý

ÌÇÐÄVlog played a significant role in a very long and often ugly battle aimed at getting most conflicted, commission-driven advice out of the financial-advice sector.

The longstanding problem was that so many advisers were paid by big financial companies to flog their products – “vertical integration”, they called it (and still do).Ìý

The advisers had effectively become salespeople for the big banks rather than professionals dedicated to the best interests of their clients.

It’s no accident that one of the key provisions of the Future of Financial Advice (FoFA) reforms that supposedly put an end to all this is a “best interest” duty.

This means financial advisers now have to put your interests above theirs, which should mean no more chasing commissions and bonuses at the expense of the client.

But it’s a still a sector fraught with danger, especially if you end up paying for financial advice you don’t need or, in many cases, never received (in recent years, an impressive line-up of heavy hitters – AMP, ANZ, NAB, Commonwealth Bank and Westpac – has been caught out for charging for advice that was never delivered).

And you could still be paying percentage-based fees (one percent of the value of your account per year, for instance) with no real clarity about what you’re paying for.

These “asset fees” are really just commissions by another name, and more or less fly in the face of the FoFA reforms.Ìý

If you do need help navigating your financial options in times like these, use the Financial Rights Legal Centre’s .Ìý

You can also call the National Debt Helpline on 1800 007 007 or visit for more helpful resources.Ìý

4. Pay for what you get – and nothing more 

If you’re going to hire a financial adviser, you should pay them on a fee-for-service basis only. If your finances have got tricky in these difficult times and you genuinely need professional advice, a financial adviser should be able to offer specific one-off guidance that you only pay for once, or as needed in the future.

Such advice should cost about $1500, which will be money well spent if the advice is good.

We’re not authorised to recommend a financial adviser or firm, but we can point you to one of our allies in the fight against conflict-of-interest in the financial advice industry – the Independent Chair of the Australian Defence Force (ADF) Financial Services Consumer Centre, Air Commodore Robert Brown AM.

His list of , put together for ADF personnel, is also open to other Australians.Ìý

But be advised that we don’t endorse or recommend any individual adviser from this list or any other list, since we haven’t checked their credentials ourselves.Ìý

If you’re looking for a financial adviser from the ADF list or anywhere else, our guide to financial planners will help you keep them honest.Ìý

Brown is no stranger to the depredations of the financial advice industry, many of which are still with us, even with FoFA in place.Ìý

“Unfortunately, the financial-advice industry is driven systemically by conflicted remuneration of many kinds,” Brown says.

“I’m certainly not suggesting that most advisers are dishonest, but I am suggesting that most of them are conflicted, resulting in serious doubt about the quality of their advice. Clients who want reasonable assurance that the advice they receive will be in their best interests should seek an adviser who does not receive conflicted remuneration of any kind. They should seek a fee for service adviser who charges hourly rates or flat or fixed fees”.

The financial-advice industry is calling for a relaxation of the FoFA reforms during the pandemic so that advisers won’t have to take so many steps to make sure they’re offering the best possible advice for the client.

We think this is a very bad idea.

5. Don’t panic over your investments 

News from the share markets has been particularly troubling: emotion-driven trades have the markets bouncing up and down like a yo-yo once again.

It’s confusing trying to keep track, but one thing is clear: now is not the time to panic and make drastic changes to your investment portfolio, either inside or outside your super account.Ìý

Our in-house experts at Super Consumers Australia (SCA) explain why in Could the COVID-19 coronavirus impact your superannuation?

The vast majority of super accounts have a “balanced return” asset allocation, meaning they’re mainly a mix of shares, fixed-income investments (mostly bonds) and property.Ìý

This is where you want your investments to be right now. It’s all about minimising risk by having a broad portfolio.

Super accounts took a shellacking during the global financial crisis, but many fought their way back to strong returns over the long haul (to be clear, many underperforming funds did no such thing).

For older Australians, there may be an argument for rebalancing your portfolio towards less risky investments such as cash and fixed-interest products.Ìý

But account holders should proceed with extreme caution.

It’s pretty much never a good idea to raid your super account for short-term financial survival and here’s a reason there are rules against this in most circumstances.

And watch out for super-related scams. Since the government announced in March that people in financial straits can have access to part of their super accounts from mid-April, there have been 87 reported incidents of scammers cold-calling people and saying they’re from organisations that can help them gain access to their accounts.Ìý

ACCC deputy chair Delia Rickard offers some sage advice.Ìý

“Never give any information about your superannuation to someone who has contacted you. Don’t let them try to pressure you to make a decision immediately, take your time and consider who you might be dealing with.Ìý

“Be wary of callers who claim to be from a government authority asking about your super. Hang up and call the organisation directly by doing an independent search for their contact details.” 

6. Beware talk about undervalued shares

There’s been a lot of talk about the opportunity to snatch up undervalued shares and rake in the returns, post pandemic, when their value inevitably rises again.

No doubt there are such opportunities out there, but unless you’re an investment expert yourself or are good friends with one, we recommend you take great care when it comes to tweaking your portfolio (if you have one outside of super) to try to cash in on the current crisis.Ìý

Lots of shady characters show up and start making noises about making a killing in real estate or investment schemes in times like these.

It’s important not to forget the lessons of huge investment scams such as Storm Financial and Opes Prime, in which many mum-and-dad investors were deceived by financial advisers, lost everything and got very little – if anything – back.

Australia still lacks a compensation scheme of last resort for victims of fraud who can’t collect on legal judgments in their favour. Why? Because the businesses went under and the money’s gone.

7. Look into deferring your home loan payments 

Trusting that your super account or investment portfolio will eventually recover (as long as you don’t have all your eggs in one basket) is one thing. But not being able to meet your mortgage payments or pay rent or bills is another.

So many Australians are in this boat at the moment that the government has taken extraordinary steps to stop the economy from tanking altogether.

Along with the hardship arrangements already available, financial support to the tune of $84 billion was rolled out in late March, mainly to help people who have lost their jobs or were already on incomes that barely met the cost of living, or didn’t meet it at all.

People who have mortgages to pay are under particular stress, and (as outlined in the ABA link above) many banks are offering to defer home loan repayments for up to six months.Ìý

But that’s a very different thing than waiving the payments altogether. It just means you’ll pay down the track, plus interest.

(The industry buzzword is “interest capitalisation” – the interest you don’t pay for those mortgage-free months will be added to the balance of the loan.)

When you defer a payment you generally lengthen the loan and end up paying more in the long run, if your bank agrees to draw it out.Ìý

The alternative is generally to make bigger monthly payments after the deferment period is over.Ìý

But deferring your payments is certainly a better option than defaulting on your home loan, which can ruin your credit rating for a long time.Ìý

Some of the offers of coronavirus relief are dressed up to look like they’ve just been dreamed up in boardrooms by compassionate banking executives eager to help.

In reality, lenders have long been obligated to change the terms of a loan in hardship cases to make it easier – or possible – for borrowers to repay, as the FCA’s Fiona Guthrie explains above.Ìý

(To be fair, some lenders are permanently lowering rates for borrowers in response to COVID-19, a laudable move that isn’t mandated by government regulations. In truth, though, ANZ’s move to reduce all variable home loan rates by 0.15% as of 27 March 2020 and other such tinkering can only do so much to help.)

Also, deferring your mortgage payments for a while creates a good opportunity to review your mortgage package.Ìý

Interest rates are as low as they’ve even been. It may be time to refinance at a lower interest rate, with either your current or a different lender.Ìý

Even small decreases in interest will mean significant savings over the life of the loan.

8. Apply for a home loan hardship package

If you took out a home loan – or any loan – anytime after March 2013, the rules around hardship variations are simple: your lender will have to offer a hardship package if you can demonstrate you’re suffering financial hardship.

With the coronavirus swinging a wrecking ball through the economy, that probably won’t be hard to do. Proof of job loss should be enough.Ìý

If you took out a loan before March 2013, the hardship variation rules are trickier.

If you borrowed $500,000 or less some time between July 2010 and February 2013, you’re eligible for a hardship variation on the terms of your loan.

For any loans taken out before July 2010, your eligibility for a hardship variation would depend on the size of the loan and when you took it out. It would also depend on which state you live in.

The good news is that a hardship variation won’t be reflected in your credit report, although any late payments probably will.Ìý

ASIC provides a .Ìý

“Financial hardship arrangements do not have to be short term,” says FCA’s Fiona Guthrie. “The main requirement is that the person can reasonably repay. Repayment arrangement in the pandemic will need to be flexible and may need to be reviewed and extended several times until we all get through the pandemic and people return to work.”

The post Making the right financial moves during the COVID-19 coronavirus outbreak appeared first on ÌÇÐÄVlog.

Many people seek financial advice at some point during their lives: to help buy a family home, invest for a rainy day or save for a comfortable retirement.Ìý

But the financial advice industry is notorious for acting in its own interest instead of looking after the people who are asking for help. And sadly, thousands of Australians have paid the price for poor financial advice, losing their entire life savings.

For decades, ÌÇÐÄVlog members and supporters have championed laws that keep this industry accountable to consumers – despite major corporate opposition and pressure.Ìý

One of the most egregious issues we spotted was that of hidden ongoing commissions being charged within super, investment and insurance products, despite no service being provided to the customer.Ìý

In 2013, we had a major win when the government banned commissions, but the advice industry fought hard and won a loophole that would let them continue to charge commissions that were in place before 2013.Ìý

In 2019, the industry still receives $2 billion each year in these dodgy commissions – for doing no work. But from 2021, these will finally be banned too.

Here’s how we did it.

The Future of Financial Advice (FoFA)

Since the mid-1980s ÌÇÐÄVlog has campaigned against dodgy behaviour in the financial advice industry. Our shadow shops and investigations found time and time again that many financial advisers were providing poor advice to everyday Australians. Industry players would consistently chase commissions over client needs and provide conflicted advice. In a 2010 investigation, we found advisers recommended products from their direct or indirect employer 73% of the time.

It was only after the high-profile collapses of advisory services Storm Financial and Opes Prime, which financially ruined thousands of Australians, that  the federal government finally took action.Ìý

The government introduced new reforms in 2012 called the Future of Financial Advice (FoFA), which aimed to stop financial advisers providing poor advice. These reforms included basic protections such as the duty for financial advisers to act in their client’s best interests and an end to hidden commissions charged to customers despite no service being provided.

This was an important first step in creating a more trustworthy financial advice industry. Disappointingly, the industry had been gifted a significant loophole that would allow advisers to continue charging ‘grandfathered commissions’ – the commissions that were already in place. These sneaky fees hidden in insurance, investment and super products continue to cost Australians billions of dollars every year despite no service being provided.Ìý

Big business up to its old tricks 

After just two years of these important consumer protections being implemented, the financial advice industry launched an aggressive campaign in an attempt to weaken the reforms. The industry called on the government for changes that would effectively water down the best interests duty. The fight was on again.

Why does fair financial advice matter? Lyndi’s story

In the mid-2000s, we heard from 57-year-old Lyndi who sought financial advice to ensure she had enough money for retirement. But things went horribly wrong.

After being coerced into borrowing a large sum of money to invest in a portfolio, Lyndi found out she’d been sold into a scheme that was high-risk to her but high-reward for her adviser. When the global financial crisis hit, Lyndi was left with more than $276,000 in debt due to the bad financial advice she received.

Lyndi’s story is unfortunately not unique. Without laws that ensure your financial adviser must act in your best interest, many Australians lost hundreds of thousands of dollars and had their retirements ruined. Stronger consumer protections were absolutely necessary to ensure that the lives of Australians aren’t destroyed by financial greed.

David vs Goliath

We knew senators had the power to stand up for the best interests of Australians and stop the changes being pushed by the financial advice industry.

To convince senators to use their veto power and save these financial protections, ÌÇÐÄVlog members and supporters pulled out all stops: 

• We sent Lyndi’s story as a letter to all MPs and senators
• We kept the issue in the news as much as we could, giving the Commonwealth Bank a Shonky for dodgy financial advice
• ÌÇÐÄVlog supporters emailed senators and hundreds of people posted and shared a photo of them on social media with our #SaveFOFA poster to spread the need for action.Ìý

After weeks of pressure and a number of attempts to secure the numbers for a vote, on 19 November 2014, Senators Jacquie Lambie and Ricky Muir joined Labor, the Greens and other Independents in striking down changes that would have watered down financial advice protections.

“Today I’m proud to say I’m going to vote with like-minded senators, the coalition of commonsense, to fix an injustice that I helped create just a few months ago … I will not allow the Liberal party and their supporters to wind back consumer protection at a time when the financial advice industry has been shown to act in a scandalous manner.” – Senator Jacqui Lambie

“Consumer groups such as ÌÇÐÄVlog, National Seniors and the Council on the Ageing have all voiced significant concerns about the changes. I have heard the concerns of many consumers and investors who have lost everything.” – Senator Ricky Muir

Closing the loophole: our win in 2019

Together, people power had already made a big difference to our consumers laws, but the financial advice industry was still exploiting a significant loophole that lets it continue to steal billions from Australians.Ìý

‘Grandfathered commissions’ refers to the hidden ongoing fees that were built into many insurance, superannuation and investment accounts before 2013 and are paid to financial advisers regardless of whether they provide any advice to the customer at all. Since 2013, these have been generating upwards of $2 billion every year.Ìý 

The banking royal commission was crucial in shining a light on this problem, exposing financial advice licensees like AMP, which had chosen to grow its pool of advisers who had clients paying grandfathered commissions, instead of acting in the best interests of their clients.

In our submission, we gave the commission more than 3000 stories from supporters that illustrated the real impact of financial misconduct.

With the royal commission front of mind, we gave AMP a Shonky Award in 2019 for ruining the retirements of countless Australians.

In October, the government finally took action to close the grandfathered commissions loophole for good. This was the first major recommendation to become law since the commission, and a huge win for consumers!

Banning grandfathered commissions will force advisers to work for future income and make sure they’re not distracted from acting in the best interests of their clients again.

We’ve only just begun

Knocking back the agenda of the powerful financial advice industry was a great victory, but the fight for better treatment from banks and financial services isn’t over yet.Ìý

Financial advice is not the only part of the financial industry that needs reform. There have been dozens of high-profile banking and finance scandals in Australia, and regular people are the ones who lose out.Ìý

That’s why ÌÇÐÄVlog members and supporters are calling for:

• Stronger laws that hold bank bosses to account. The Business Executive Accountability Regime (BEAR) needs to be extended and explicitly hold executives accountable for consumer protection issues.
• Compensation when they do you wrong. The financial sector needs to fund a last resort compensation scheme, to ensure people are not left financially ruined.
• Stopping banks from writing their own rules. ASIC needs rule-making powers to draft and administer mandatory industry codes, instead of letting businesses draft their own unenforceable, weak codes that don’t help people or curb bad conduct.Ìý
• Making the mortgage broking industry act in your best interests. Brokers need to live up to their promises – there should be legislation that requires them to act in the best interests of their customers.
• Closing loopholes for banks and insurance companies. Loopholes and gaps in the law need to be closed so everyone is on the same playing field and consumers are protected across the board.

Now it’s time to make sure the government sees these changes through.Ìý

You can help stop the companies we trust with our money to stop taking advantage of us. Join the fight to make banking fair by adding your support now: 

The post We took on big business – and won appeared first on ÌÇÐÄVlog.