With more Australians using the internet and carrying smartphones than ever before, scammers and dodgy operators have even more opportunities to infiltrate our lives. However, it’s not just bank scams or dodgy postal notifications you need to be on the lookout for. It’s an unfortunate reality that many retirees or those approaching retirement are being targeted by unscrupulous financial advisers—or those posing as qualified advisers.

Callun Blurton is a lawyer who has had a particular focus on financial services litigation—specifically, assisting clients in claims against financial planners, stockbrokers and other parties involved in the provision of advice to investors.

Through Financial Dispute Legal, Callun has seen a growing number of older Australians losing their life savings to investment scams and bad financial advice. He says retirees or those approaching retirement are particularly vulnerable because they typically have low levels of debt and savings they haven’t previously had at their disposal.

“The perception is that people in this stage of life often need financial advice because they most probably have sums of money they haven’t dealt with before, and are faced with confronting decisions about what to do with that money. When you have people seeking advice about large sums of money, there will always be those who want to take advantage,” Callun explains.

The risk, Callun says, lies not so much in seeking financial advice but in not thoroughly researching the credentials of the person giving advice, or questioning inconsistencies in their service.

“The first case I was involved with was a group of people from a particular area who were all given the same advice, which meant they borrowed money against their homes and invested those funds in the share market. They often used more risky investments on top of that, which stretched the investor even more.

"Some people lost all their retirement savings and were in a position where they were already retired or close to retirement, so they couldn’t remedy the situation.

“Unfortunately, that sort of scenario was fairly common. Another scenario we started to see five or six years ago was advisors recommending the purchase of negatively geared investment properties within Self Managed Super Funds. The problem for investors with this strategy was that the investment property was negatively geared, which ended up draining the super fund. The recommendation now is that you need to have a self-managed super fund of at least $500,000 or it won’t be cost effective.”

Callun says he is concerned by the surge in Bitcoin scams through online brokers.

“The number of people I speak to who have been advised to invest in cryptocurrencies is staggering. This type of investment can be ok, but it is important to know it is incredibly volatile. I’m seeing a lot of overseas scammers targeting people here in Australia promising huge returns on Bitcoin investments, and it’s concerning because there is limited ability to see or track where the money is going. It’s a massive problem.

“Often people are being targeted through cold calls and by companies who claim to be registered in overseas jurisdictions, when in reality they aren’t registered or are registered somewhere that doesn’t have any real control over their activities. They purport to be legitimate but they aren’t at all. Going forward, there needs to be much greater regulation and education about these types of investments.”

So, what are the ‘red flags’ we should be on the lookout for when dealing with those recommending financial products? 

“Most importantly, check to see if the person you are dealing with is authorised to provide financial advice or has a licence in Australia to deal in financial products. If they don’t have proper authorisation or a licence to give financial advice, then they might not be able to provide you with financial advice. I recommend asking the person the name of the licensee they are authorised through and then research this through ASIC’s Financial Advisers Register at moneysmart.gov.au.

"This online register allows you to check for a financial adviser using their name, number or ABN, or find a professional using your suburb or postcode.

“The second thing I would recommend is looking at how the advice you’re being given is presented,” Callun says.

“Has the adviser or person you are dealing with given you a formal strategy document or formal statement of advice? Is that document comprehensive? In that statement of advice, the advisor needs to explain to you, in terms you can understand, why the advice is in your best interest. They must go through the alternatives they’ve considered, how the advice they’ve given will put you in a better position, and they are required to set forth how it’s charged and any conflict of interest. This gives you the right to make an informed decision.”

Callun says alarm bells should ring if the adviser is associated with a company but uses a personal email address—for example from a Gmail account—to establish or maintain contact with you. 

“All communication should be through formal channels linked to the company, whether it be mail, phone or email. Why is this important? Well, the company he or she is providing advice from has an obligation to oversee what they are doing. So, if the adviser is trying to go outside of that controlled environment, you would need to question why that’s happening.”

Many people use word-of-mouth referrals from friends or associates when it comes to choosing financial advisers. Callun says this is fine, as long as you do your homework.

“By all means, getting a recommendation from a friend can be good. But it can also lead to the situation I mentioned before where a group of people in a particular area all end up getting bad advice. What I would say is, if you do get a recommendation from someone, check it out. Shop that advice around.

“The majority of financial advisers out there are in it for good and are there to do the right thing by their clients. So, if you are given some advice that sounds too good to be true or seems dubious, don’t be afraid to take that to a few different advisers to get a second opinion.” 

Finally, Callun says there is no shame in admitting you've been scammed or given bad advice—the real shame lies squarely at the feet of the perpetrator. 

“There’s a lot of embarrassment felt by those who have been scammed or are worried they’ve been taken advantage of through bad financial advice. It can make it really difficult if the person who has been scammed is unwilling to admit it. Some people simply choose to cop it. But the best thing to do is report the behaviour and seek help.”

Scamwatch is run by the Australian Competition and Consumer Commission (ACCC). It provides information to consumers and small businesses about how to recognise, avoid and report scams.

Visit scamwatch.gov.au to report a scam or get help. If you need help recovering money lost to bad financial advice, Callun, through Financial Dispute Legal, offers obligation-free and confidential initial consultations to understand your case and determine if he can assist recovering compensation.

To learn more, visit fdlegal.com.au or reach out to Callun on 1300 433 533 or at callunblurton@fdlegal.com.au 

A number of National Seniors Australia members have written to us about the conduct of unscrupulous financial advisers. Two such members have kindly allowed us to share their experiences here.

Peter

Peter* told us after working 23 years, seven days a week to become a self-funded retiree, he decided to get financial advice for what to do with his savings in retirement and it cost him dearly.

“Having no financial experience, I was introduced to a supposedly leading Adelaide financial adviser who encouraged me to invest a large sum of money into a super pension fund that would return me a $5,000 pension per month for the rest of my life. From day one, he had me sign blank withdrawal and transfer forms so he could decide on the day the best option and never provided copies of the completed transactions.

“In 2018, a leading Adelaide lawyer raised serious concerns about the questionable administration and depleted funds. In 2019, I discovered my trusted adviser of 19 years had sold my fund to his assistant without my knowledge or authority and retired.

“I have since discovered in those 19 years, I have only received one payment of $5,000 (as originally promised), have been underpaid $222,000, and lost an additional $500,000. This was closely followed by a further five-year loss of $230,000 from the unauthorised administration of the assistant, who had bought my fund without my knowledge.

“No one will investigate the financial adviser’s conduct and a recent Freedom of Information Act request for documents from the licensees was refused. When the legislation was introduced to make super funds more accountable, it should have included financial advisers.”

Thomas

Thomas* also experienced challenges with using a financial adviser to look after his self-managed super fund. 

“Some while ago I received a letter from my adviser to say that he was amalgamating his business with another adviser, but would remain as my adviser with the new entity. I was happy with this arrangement, as it really involved no great change to my financial planning. However, there were problems within the new business and my adviser left. As part of the separation agreement, my adviser undertook not to contact or accept any former clients. This meant I was left with a largely unknown adviser.

“My point in raising this is to seek changes to the appropriate legislation to ensure those who are placing their funds in the hands of fund managers are informed before the transfer of their affairs takes place.

"This need not breach any negotiation confidentiality. The funds would continue to be able to undertake amalgamations or restructures but once the action has been agreed and all contractual processes completed, no action can be taken to transfer client holdings for 14 days, in which time clients must be advised and given the opportunity to accept the arrangement or transfer to a new adviser.

“This is something that can be put in place quite quickly. However, I would really prefer to see a universal superannuation scheme under an independent Superannuation Commission answerable to parliament through a minister but not subject to direction by a minister.”

*Names have been changed for privacy