We’ve long been taught that “if it seems too good to be true, it usually is”. So why are so many people getting caught out by taking advice on money matters from people who aren’t qualified to give it?
Financial regulator ASIC has — finally — begun cracking down on so-called ‘finfluencers’: people using social and other media to peddle financial advice without having the required qualifications to do so.
The move should save lots of people from making potentially disastrous decisions about their money. For others however, the crackdown comes too late.
Everyone’s an ‘expert’
The word “expert” is bandied around so much nowadays, and it’s often self-appointed. But writing a book or making social media posts doesn’t automatically make someone an expert on a particular subject!
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Expertise is earned through years of learning and practice, backed by professional qualifications, industry registrations and ongoing training.
In Australia, only people with a current Australian Financial Services (AFS) licence, or their authorised representatives, are legally able to offer financial advice.
A common thread among finfluencers is to discuss the ‘what’: what investments should you put money into? What delivers the best returns? Rarely do they discuss the strategy behind those investments.
Building wealth is as much about your approach as it is your investment types. That strategy should include how to buy and when, how to structure investments to minimise tax payable, how to leverage tax offsets/grants/incentives, as well as when to sell assets — both to maximise returns and minimise any Capital Gains Tax (CGT) liabilities. It’s also about managing changes in the economy, market movement and new legislation issues/opportunities.
Consider what is driving a finfluencer: are they profiting by selling you a book? A program? Receiving advertising/sponsorship benefits on their social media channels?
Alternatively, are they spruiking a particular investment from which they derive income? Or solely work for a fund that means that is all they can discuss?
Another example is self-managed super funds (SMSFs). These are commonly marketed as a chance to take control of your retirement savings. But you can take control of your superannuation regardless and often in less complex, less expensive ways with a range of investment options.
We’ve all heard finfluencers and read authors some who claim you don’t need a financial adviser. “Everyone can manage money themselves,” they say.
Of course, you could do everything yourself. But at what cost? Do you really know everything there is to know about money, tax, superannuation, investments, inheritance etc? And the complex laws governing them — not to mention how they may apply in your ever-changing circumstances throughout your life? Unlikely.
For instance, take the commonly spruiked myth that “consolidating super is guaranteed to save you money”. In reality, doing so could lose you thousands if, for instance, you:
- Consolidate into a super fund with higher fees than you need to pay;
- Lose preferential features by consolidating into a less suitable fund. Not all investments in every fund are the same;
- Reduce your earnings by consolidating into a poorer performing fund;
- Restrict eligibility on insurances — life, disability etc — by rolling into a fund with inferior insurance conditions (especially if you had the now terminated policy from a young age and/or before certain health conditions were diagnosed);
- Lose insurance cover altogether because the policies automatically terminated when the attached super fund was closed; or
- Have lapsing nominations meaning your money (or your partners) doesn’t go where you think it will on death.
Accounting vs financial advice
Surprising numbers of people believe accountants are financial advisers. But the two are very different professions, with distinct requirements governing their registration to practice in Australia and the matters about which they are qualified to speak.
Seeking advice from only one means you’re only getting half the picture.
Having both working alongside one another ensures you have a comprehensive view over your financial affairs and a great team supporting you.
Finding qualified advice
Determining who is credible and worthy of your time is the best investment you can ever make.
Check the financial adviser register on the government’s MoneySmart website. It makes clear who is registered to practice and their qualifications.
Google them and their practice: see reviews from other clients, what industry memberships and qualifications they have, where their name appears in media articles and regulatory bodies.
Remember: everyone’s circumstances are different. And they change over time. So even if a finfluencer claims to successfully manage their own finances here and now, their strategies won’t necessarily work for you too.
Typically the cost of seeking professional advice upfront works out infinitely cheaper than the costs of getting something wrong!
This article was first published by Women’s Agenda.