Martin Hawes: Little trust in those advising

Photo / Kenny Rodger

A recent survey has found that 71 per cent of people do not trust financial advisers.

That is hardly surprising - with all the losses on finance companies and other investments it is perhaps surprising that the lack of trust is not higher.

Not only have there been large investment losses, the business model that most financial advisers still use - commissions - means the public will always be suspicious of those in the industry.

I do not believe financial advisory will ever become a proper profession while advisers are seen, largely, as selling a product on commission.

However, I do think the public's expectations of financial advisers are too high. Giving financial advice - especially investment advice - is not as clear-cut as with some of the professions, where the solution to a client's problem is a technical matter and can usually be answered quite definitively.

An accountant works with (mostly) definitive tax rules and an engineer works with certain structures and calculations.

On the other hand financial advisers are always predicting the future - and as has often been said, prediction is difficult.

As a financial adviser I can look at specific investments and tell whether they are over-valued or under-valued - although there is a good bit of judgement required for this and it will always be imprecise.

I can also look at what has happened in the past and say from that what is likely to happen in the future.

By looking at the past, I can tell you that a particular asset class (say, property) will probably return 10 per cent over the very long term. Or I might be able to tell you that another asset class (say, emerging markets shares) is grossly overvalued and that you should stay out.

However, no financial adviser can tell you what will happen next week or next month or even next year.

A share market may return 11 per cent over the long term but next year could see a 50 per cent gain or a 20 per cent loss - no one knows.

Many investors do not care about what will happen in the long term - their concern is for what is happening to their money now. They are upset by current losses and even though their financial adviser had told them to expect volatility, the reality is nevertheless upsetting.

This is a major reason for the lack of trust in financial advisers - investors feel the pain of loss as if such a thing was unexpected. I think that it is unreasonable - we all know there can be no certainty in the short term.

So, criticise financial advisers when they are self-serving and/or incompetent - regrettably there are examples of both - but cut us a bit of slack when we are neither inept nor unethical.

Remember that what we do will never be as precise as with other professions, no matter the training, qualifications, regulation or fee structure.

* Martin Hawes is a financial adviser. His disclosure document can be found at www.martinhawes.com