The recent collapse of the Westpoint property development group has caused retail investors – many of them retirees and superannuates – to lose a total of $300 Million.

Sadly, many of those who lost money were directed towards this supposedly ‘safe’ investment by licensed financial planning groups. This raises the question - how far can investors trust financial planners?

When initially meeting a financial planner, make sure he or she has an AFSL issued by the ASIC. Ask how the financial planner is remunerated. There are three main forms of remuneration: (1) commissions, usually paid by investment promoters to planners; (2) fee-for-service, which involves a mixture of up front and hourly rate payments; and (3) portfolio percentage,
where the planner takes a set amount of the investors portfolio.

For most small to medium investors, option (2), the fee for service, is best. While it involves an initial payment of money, there is less motivation for the planner to recommend an unsuitable investment based upon commission. If you prefer to pay commissions, make sure the planner discloses the
amount and percentage.

Evidence has emerged since the collapse of Westpoint that some planners were offered commissions of up to 12% of their clients’ investments. Realistic commissions should be no more than 2% of the amount invested, plus an ongoing fee of 1% per annum. This includes identifying the risks. Don’t blindly accept any property investment simply because it’s described as ‘bricks and mortar’.