Big Banks Claim
How Do Major Banks Compensate You For Negligent Financial Advice?
People use financial planners to help them achieve their financial goals. However, how do we know for sure that financial advisors have our best interests at heart? We take a look at the big banks of Australia to see how they are being held accountable for negligent financial planning.
Negligent Financial Planning In Australia
Across Australia, people are engaging with financial planners to assist with their financial needs and investments. Financial planners are people who are trained to help people manage their finances in order to achieve the financial goals of their client. Financial planners are required to follow the best practices of their profession and are required to follow a duty of care to their client. However, not every financial planner follows these legal requirements, playing Russian roulette with other people’s money. This doesn’t just occur within small businesses and independent financers, but in major financial institutions. In fact, more and more news has shown that investors have suffered massive financial losses due to bad financial advice from the major banks.
How Have The Banks Been Involved In Financial Negligence?
There is a number of ways that the big banks have been guilty of financial negligence in Australia, these include;
Financial advisers who switched their client’s financial products to high risk investments which lead to higher fees and commissions for the bankers themselves. This was often done without the consent of their clients with some planners even forging the signature of their client to push the investments through.
Some financial advisers did not provide all the promised services, even after the client had already paid for it. This included not providing documented annual reviews over a number of years.
Many of the banks have had to suspend or terminate financial advisers in their employment due to the bad financial advice they had given to their clients.
Some investors were misclassified by their financial planner as sophisticated investors rather than as retail investors as this decreased the amount of paperwork and requirements the financial adviser had to meet. Also, by classifying their clients as sophisticated investors, financial advisers were able to push their clients into higher risk products to earn more commission, while charging higher fees.
How Are People Affected By The Banks Negligent Financial Planners?
The big issue in financial planning is the imbalance of power between the two parties. Financial planners are much more experienced in matters of financial investing and have more knowledge to draw upon than the average investor. They have the knowledge and know how to guide their client to the best financial solution for them. The client, usually not as knowledgeable as their financial adviser, cannot be sure if the financial advice they receive suits their circumstances. The Australian Securities and Investments Commission (ASIC) did research in this area, showing that 86% of clients were happy with the advice given despite a clear lack of reasonable basis. This tells us that despite being given bad advice, many investors believe it to be good advice due to a lack of knowledge. So with financial advisors holding most of the power in these situations, some are able to use it to their advantage, using the client’s vulnerability to input inappropriate investment options. Some clients who received bad or negligent advice from the big banks are now facing debts, loss of their savings and retirement fund.
Are The Banks Being Held Accountable For Negligent Financial Planning?
Financial Negligence Compensation Claims
The victims of bad financial planning advice are able to take legal action against the major financial institutions, with the banks paying millions in compensation. Lawyers have been successful in claiming substantial payouts for their clients. However, compensation claims take time which draws out the process and leave the victims in financial hardship and emotion distress for prolonged periods.
New Legislation | Future Of Financial Advice
Due to the number of high profile actions in large financial institutions, Australian law has been amended to help improve the quality of financial advice, protecting investors and attempting to restore the trust of people in the financial planning industry. The new legislation includes provisions such as;
- The requirement of financial planners to legally act in the best interests of their clients, providing a duty of care, and putting clients’ needs ahead of their own.
- A ban on remuneration such as commission for certain financial advice.
- An opt-in obligation that requires financial advisers to renew the fee between themselves and their clients every two years.
- Full disclosure of all annual fees and statements required for all clients.
New Compensation Scheme
A new compensation scheme entitled the “scheme of last resort” has been proposed to provide a safety net for investors who receive bad financial advice from advisers that are unable to pay or have gone out of business. This usually happens with smaller financial planners or individual businesses. This scheme is supported by 3 banks who are willing to offer up the “safety net” for victims from their smaller competitors.
If you feel you have been a victim of negligent financial planning from any financier, call the Investment Recovery Centre today on 9011 7972 for more information about making a claim.
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