Kohler: You Can Beat The Investment Industry Rort

Writing for The Age and Sydney Morning Herald, presenting on the ABC News and now on his own website, The Eureka Report, Alan Kohler is one of Australia’s clearest thinking business journalists.

One entertaining example is his recent article on broadband policy, Spending billions to get faster videos policy, his tongue is firmly in cheek when he suggests:

What we need is a massive government-run project, with billions of dollars of taxpayers’ money, so that 99 per cent of Australians can get an inane video with five seconds of buffering, not 15-20.

Not only that, any suggestion that people in rural and regional Australia should put up with a 10-second longer buffering pause than people in the city is an absolute outrage and disgrace, and not to be tolerated for one minute.

But it’s Kohler’s Eureka Report quest to be an “alarm clock” to Australia’s investment industry which he sees as, “a racket,” where “most participants in the investment industry know they are on an unsustainably good thing, and just want to keep their heads down and keep raking in the money for as long as possible. Every day that they don’t get rumbled is a great day.”

Why?

Well, we alerted PWF readers last year.

Beware financial planners’ ulterior motives.

Kohler makes these alarming points:

The salesmen on whom the whole industry rests are called “planners” or “advisers”. It is a simple but effective accident of history that means most customers don’t know they are being sold to, and that they are dealing with a commission-based salesperson. They think they are just being advised. Many advisers are very good at what they do, many are not. It’s pot luck. And as for getting sophisticated, relevant analysis of investment markets and techniques … forget it.

The basic technology being “sold” is a simple computer program called a platform or wrap account that passively administers investment portfolios and which wholesales to advisers for a couple of hundred dollars a year. Yet “advisers” charge thousands for it – a service that costs them almost nothing and is basically a device for selling other products (managed funds) for extra commissions.

Worst of all, every service in the industry – advice, administration and investment management – is billed as a percentage of the customers’ assets. This is the greatest rort of all.

He goes on to explain that most of us aren’t equipped to understand that percentage fees can really cost.

Someone with an average retail managed fund he’s cited with savings of $200,000 could be paying to advisers up to $10,000 up front and $3000 a year or to be put bluntly, $250 a month, every month.

“Would they pay that much if an invoice was sent each month? Maybe, but they might start asking what they were getting – especially if they hadn’t heard from the adviser for six months and they knew the fund manager had just put the money into the top 20 stocks.”

But Kohler sees hope.

He says investing isn’t too complicated and thinks that it’s possible (with a bit of common sense, diligence and the right tools) to do it yourself without blindly handing over all that money to a financial “planner”.

But he warns:

But it’s important to understand that investing is work. It is not gambling, or wishing and hoping, or trying to get the inside dope: it is work; a second job. Nevertheless with the right kind of support, you can do it and you can beat the pros.

And that’s why Alan Kohler set up the Eureka Report.