Most people have good intentions. Some people just don’t know how to act this out. But a very small part of the population genuinely have bad intentions.
I will not cite past and current examples (Google will bring up plenty) but the financial planning industry has some very high profile cases of individuals and organisations doing the wrong thing by clients. I won’t get into why it happens, other than to say basic human greed is usually the root of it all.
What I wish to comment on is how I give reassurance and comfort to my clients that I won’t go bad and steal their money.
To work successfully with my clients, they must trust me. Trust that I will give them appropriate investment advice. Trust that I know what I am doing when planning their overall strategy. They must trust that I won’t do anything against their best interests.
To build this trust when I first meet someone, I outline how long I have been doing this, what qualifications I have and how I am licensed (the legal side of being allowed to give advice). Most new clients come to me from existing clients or accountants I work with, so the trust is built quickly as someone has already said “Peter’s a good planner and does the right thing”.
Taking advantage of trust
But this trust can be abused by some. Financial planners can recommend inappropriate investments, but because clients trust them, they do not pick up that something is not right. A type of inappropriate investment would be where a planner gets a substantial financial benefit from recommending it. An obvious example is where a planner gets a huge kickback for referring a client to a residential property developer.
A less innocent situation is where a planner has a direct connection with an investment they are recommending, such as a private company they own shares in, or a property development that is being run by a relative or friend.
Then there are cases of straight out fraud. Either fraud in completing forms to buy or sell investments, or fraud in misappropriating funds from within investment vehicles. And of course, the most blatant action is just stealing cash from clients’ bank accounts.
I know of cases of all the above. The impacts of such actions can be massive, and I have met people whose entire life savings have been wiped out.
Don’t just trust me — trust my systems
Now that I have scared you, let me show you some simple ways I have removed these risks for my clients.
- I cannot transact on clients’ bank accounts without authorisation. Clients need to sign to allow me to settle purchases and sales of investments into bank accounts in their own names.
- Clients must sign something to pay my fees, either when writing a cheque or instructing a third party to pay me.
- No investments are linked to me or Counterpoint in anyway.All investments I recommend are publicly available and researched by third party research institutions.
I always make the above points very clear, but sometimes I feel the importance of them is not taken seriously enough. Maybe people are too trusting and think I would never do anything wrong. But I am sure anyone who has been wronged by a planner trusted them at some point too.