Ask Paul: A financial planner lost me tens of thousands of dollars

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Dear Paul,

Years ago I had money I thought was invested by a financial adviser with a big-four bank in a portfolio that I had discussed with him at the time.

He did not comply with what we both had discussed and instead put 40% in American shares. This happened around 9/11 in 2001 and I lost $55,000 when the stock exchange was down for a week. 

ask paul clitheroe financial planner lost me tens of thousands of dollars

I took my money out of his hands and since then have managed it myself. The first years were good years, with interest high, but now, in 2020, the interest in term deposits is 1% or less. The government's deeming rate of 2.25% and the banks' low rates leave me way behind the eight ball. 

I have $400,000 left; I am 77 years old and on a pension. Health seems okay at the moment but that can change quickly. I would like to maximise this capital without affecting my pension.

What do you suggest I do? I live in a lifestyle village where I own my house but pay $7500 in maintenance rent each year. - John

John, I am very disappointed to hear about your poor experience with a financial adviser. I don't see how any Australian investor would have 40% of their portfolio in US shares. I hope you have taken this up with the bank and received some compensation.

There is a surprising amount of complexity around investment and pensions. Here I need to take a cautious approach as I really only know a few key facts about your situation.

I am strongly in favour of your strategy not impacting your pension. Clearly, increasing your actual investment earnings up to the deeming rate should put you in a better situation. This, as you say, is easier said than done.

It sounds as if you are holding your $400,000 in term deposit-type investments. One option would be to consider investing part of your money in a conservative income-type fund. Appropriate investments for you could be a fixed-interest fund, an equity income fund or an income fund with a mix of assets. Examples include Vanguard's Australian Fixed Interest Index Fund and Perpetual's Diversified Income Fund, but there are a lot of similar funds.

The returns in 2019-20 were pretty close to the deeming rate. Unlike a term deposit, these returns will fluctuate in line with interest rate and market movements, but over time they have historically offered better returns.

As a self-directed investor, you would have to do your own research, but it seems to me that your best chance for capital preservation is diversification.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the television show Money, radio, and most notably this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is Chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
Comments
Craig Franklin
December 20, 2020 12.36pm

HI Team

I hope you are well and safe at this difficult time.

My issue is with the relationship between Harvey Norman and Latitude finance. There so-called interest-free periods that they offer on a regular basis eg. 6 months interest-free to pay. The finance is offered by Latitude finance and with my credit rating, I was worried I wouldn't be able to afford a new $218 monitor but I was approved within 6 hours.

They don't tell you that you are automatically pre-approved for a $2000 GO/Latitude credit card with the highest interest rate possible and a high monthly charge.

I had no idea of the card when purchasing the monitor until the card arrived. I am permanently mentally disabled and have been on the disability pension for 18 years.

This is clearly a fishing expedition by Latitude finance, sending $2000 Credit to the poor and seeing if they will spend the money and be locked in forever in their repayments cycle. You only pay $5 off the principle with the minimum payment each month which is over $50. and is all this is actively supported by Australia's biggest retailer of homewares and electrical goods, Harvey Norman

If you send enough cards out, the desperate will end up spending them on food, rent, and school payments, etc rather than have their children starve.

I understand that we are responsible for our own actions and I did spend the money but what could I do? Starve? Go without my medicines that keep me sane? All of a sudden being magically cured and able to manage my money?

This is a total scam in anyone's books and purely a fishing mission by the worst financial company (you know how Latitude/Go/ GE money treat people in the USA) and is actively supported by Australia's biggest retailer of homewares and electrical goods.

I would love a reply and would love to discuss my personal experiences and the lies I was told by the sales team to sign me up for this scam especially if this has happened to you too.

Regards,

Craig Franklin

Mary Fernando
December 23, 2020 9.19pm

I am 78 and use the Internet to contact friends and family overseas. Telstra is the service provider and since connecting to the NBN the line rental discount for seniors is not provided anymore. Previously I used ADSL for my Internet and it was more economical. I am paying $80.00 plus additional cost of calls. Telstra has even insisted that the monthly phone bills be paperless meaning it wants to use my Internet connection but not offer any discount for the use. What can I do to reduce cost of the Internet connection? I am fed up of subsidising big companies which pretend they are actually helping me. I am sure they are others who feel the same. Seniors are encourage to keep contact with family but no financial incentives provided by anybody. I do not have a mobile phone due to the extra costs.

Bec Howlett
December 30, 2020 10.44am

Hi Mary, sadly I don't believe there is much you can do. The senior/pensioner discount on ADSL is a government initiative so until, they make it available on the NBN, providers won't offer it. You're best bet is to look for a cheaper plan with another provider. Personally I'd recommend iiNet or Internode as they continue to win international awards for customer service and network performance, you can compare NBN plans here https://www.whistleout.com.au/...

Ryan Grant
December 24, 2020 1.46pm

I strongly recommend talking to the licensee about this, surely there was some form of documentation at the time, although that was a long time ago now.

Secondly, agreed with Paul that moving away from cash and deposits means trying to improve your returns to at least keep pace with life, deeming rates, and inflation.

Mee Tsang
December 27, 2020 1.44am

I do not understand why people have to buy something which they cannot afford? I have my last TV for 15 years and inherit the current one from one of my friend. You have to responsible for your own spending and only buy something within your means. There is nothing wrong to have 2nd hand things and or go to Op shop.