A number of recent high profile scheme collapses like Timbercorp and Great Southern have highlighted the danger of commission based investments where there is a conflict of interest between the investor and the financial planner. The investor requirement for sound financial and ivestment advice is at odds with the commissions offered on investment in risky and flawed investment schemes.
Commissions vary and various scheme promoters can reward a financial planner with significant commissions. It is often the better products which pay lower commissions and the riskier products, such as forestry schemes, which pay higher commissions.
Financial planners are not financial analysts. Many do not analyse, or even understand, the products they are promoting. Some of these schemes are set up by promoters for tax-minimisation purposes and are often not sound investments.
Most financial planners will give advice but, when you read the product disclosure statements, they are qualified and advise you to see an accountant. However, many accountants are unable to give financial product advicebecause the do not hold a financial services licence and therefore cannot properly analyse the advice given by a financial planner. In most circumstances, they can only given tax advice on the products chosen for you.
As forensic accountants we have seen schemes proposed by financial planners which involve:
- Setting up inappropriate entities, such as hybrid trusts, family trusts, superannuation funds, and/or companies which may not be the correct vehicle for the client’s particular circumstances.
- Setting up products and schemes using self-managed superannuation funds (SMSFs) with other structures which are costly and will not comply with the very strict SIS regimes. The fines for non-complying superannuation funds can be as much as 93% tax paid plus penalties for various breaches.