What does BAD Advice look like?

It pains me to be even sitting down and writing this article. The fact is I’m outraged about what I have just heard and seen, it makes my blood boil.

I can understand why roughly 80% of Australian’s don’t seek advice, it’s because of stories like the one I’m about to tell you, about real people receiving bad advice and unfortunately the client themselves didn’t know it until I pointed it out, so you won’t see this story splashed all over the newspapers.

The good thing, however, is that they have not lost substantial amounts of money(they will over time though), they were just taken out of a product that was suiting their needs and put into something that was going to put them into a worse tax position.  You could call it churning for the profit of the adviser, not the client.

The Clients:-

This couple (Mr and Mrs X) in question are over 60 and have been retired for some time.  As with most retirees, their retirement savings were invested in what’s called an Account Based Pension, basically, a product that provides a regular source of income either fortnightly, monthly, quarterly or yearly.  This product is a tax-effective income stream, in FACT, there is no tax payable on the earnings and NO TAX payable on the income they draw from the Account Based Pension.

Mr and Mrs X had been with their first adviser for sometime.  Unfortunately for them, the adviser left this firm.  As is the case with most advisers that leave a business, they are restricted from taking their clients from the old business for a period of time.  As a result, the clients were allocated a new adviser within the existing firm, but unfortunately, these client’s were not contacted by their new adviser and therefore looked around for a new adviser at a different firm. They ended up going with someone closer to home, someone more conveniently placed and that’s when it all went wrong!

The Bad Advice:-

So, the client decided to move their business to their new adviser, it seemed easy to do.

On the face of it, based on the client’s circumstances, there was no need to change the product (Account Based Pension) they were in.  The Account Based Pension was meeting their needs;  no tax on the earnings, receiving the income they required tax-free and should the funds pass to the Estate, minimal tax would apply.  At the bare minimum, a review of their current structure would have been appropriate, to ensure the product they had was cost-effective and the investments were appropriate for them would have been all that would have been required.

Here’s where this adviser went completely wrong!

The new adviser (let’s call him Mr Y), for whatever reason made a recommendation for Mr & Mrs X to close their Account Based Pensions, combined worth approx. $700,000 and invest into what is known as a Tax Bond.  For those of you that do not know what a Tax Bond is, it is an investment where the investment earnings are capped at a maximum tax rate of 30% (in other words they are TAXED up to 30%) before distributing the profits to the client.  Yes, if you hold the investment for 1oyrs or more, there are no capital gains tax on exit.  These types of investment structures have not been overly popular over the last 5yrs or so, however, given new tax rules will become an alternative investment structure to super in the future.  Generally, they are used for people with tax brackets higher than 30%, or for inheritances for young children where they can’t receive the money for a period of time or on the odd occasion to hold funds in a family trust to reduce income being assessed for aged care purposes.

Now, none of the above reasons are true for Mr & Mrs X .

So, why is the advice given to Mr and Mrs X BAD ADVICE?

Let’s break this down a little. They had roughly $700,000 in two income streams (no tax on earnings and minimal tax if the funds hit the Estate), one in each name. Let’s say the income being generated inside these two Account Based Pensions was 4%, that’s a TAX-FREE income of approx. $28,000pa.

Versus the TAX BOND, based on a maximum tax rate of 30% (which is the maximum tax rate inside the Tax Bond), their investment would be paying tax of $8,400 per year ($28,000 x 30%), for the rest of their lives. Let’s say the clients lives another 20yrs, that’s a massive $168,000 that they paid in tax (tax they didn’t need to pay). That’s $168,000 they could have saved if they had kept the Account Based Pension.  Yes, they would not have any capital gains tax on exit and no tax on death, however, if they live for another 20yrs, they are missing out on $168,000, that’s money they can’t use for healthcare, living costs now or funds that are not passed onto the next generation.  This ADVICE is plain wrong.

Once I had worked out what had happened, I asked Mr & Mrs X, did they know what they were doing? Did they understand the advice? Mr & Mrs X indicated they were rushed into the decision and just thought they were saving tax.  Clearly the adviser Mr Y did not explain the negative issues related to this advice.

And here’s what really makes my blood boil, the adviser Mr Y charged 1% for this advice based on the level of assets they hold, that’s $7,000 that the adviser Mr Y MADE and it cost Mr & Mrs X $7,000 plus the tax each year of $8,400, what an outrage. The adviser clearly gave bad advice and charged for the privilege and the client didn’t know any better.

Unfortunately given the client’s age, they are unable to reverse this!  Mr & Mrs X are too old now to move back into an Account Based Pension.

What to look out for when seeking Financial Planning Advice?

  • Does the adviser understand you? I don’t just mean understand just your financials. Is the adviser asking questions that are about you, what you want your life to look like, your ambitions, your goals, how have you got from where you have been to this current point. What’s getting in the way of you achieving your financial goals?  Is the adviser getting you?

It’s difficult to provide the right advice without understanding where you are headed and what you want to achieve both personally and financially.  Less talk about them and more about you telling your story.


  • Don’t implement advice you don’t understand! If you can’t understand the advice, continue to ask questions until you understand and if then you still can’t understand it, it’s most probably too complex for your needs and not appropriate. Advice should be simple to understand and meet your individual needs.
  • Don’t move from one product to the next without understanding exactly why you are doing it. There needs to a benefit to you, not the adviser.
  • Try the “have a beer test”! If you feel you could have a beer or even lunch with the adviser and can comfortably talk to them, then their most probably a good fit.

Now, most advisers out there are trying to do the right thing by their clients, however hearing the above is more common than what it should be in this day and age.  Given that around 80% of Australians do not seek advice is alarming in itself and I see too many people leaving it all until it’s all too late, and hearing stories like the above does not help.

Hope that helps you understand what bad advice looks like.

When it comes to getting financial life in order and living your desired lifestyle, you have two choices, you can go it alone and fumble your way through, or alternatively, you can take the fast lane.

If you’d like to fast track the process, feel free to reach out and I’ll share some of what I’ve learnt.

P.S Whenever you’re ready, here are 3 ways we can help optimise your financial affairs so you can go live life, sound good?

1. Book a call a for 15min Strategy session

If you want to get some 1:1 help, we can jump on the phone for a quick call, and brainstorm how to make sure your financial affairs are optimised, protected and cared for.

Email me at gdoherty@jigsawprivatewealth.com.au to book a time.

2. Book an in office or online strategy session

If you want to go a bit deeper, you can book a Strategy Session to scope out, road test and make sure your current plan is the best it can be, fully optimised.

Email me at gdoherty@jigsawprivatewealth.com.au or phone me on 0401 253 729

3. Answer a Question

Or, if you just have a burning question that you want answered or a problem you are trying to resolve, simply just send me an email, gdoherty@jigsawprivatewealth.com.au

Other Resources:-

Get a free copy of my Super Changes Cut Through ebook by clicking here.  You’ll find 11 simple, no jargon strategies to supercharge your retirement including one strategy that will give you a 30% guaranteed return(30% tax bracket) than 70% of people are not taking advantage off.

Check out my blog page with other useful articles by clicking here.
“There are only 168 hours in week. MAKE THEM COUNT!”


Written by Glenn Doherty CFP – Founder and Financial Organiser – Jigsaw Private Wealth




This information is of a general advice nature only, and has been prepared without taking into account your particular financial needs, circumstances or objectives. All information is based on Exelsuper Advice Pty Ltd’s understanding of current law as of 4th April 2017. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should seek professional advice before acting on the information contained in this publication. Taxation considerations are general and based on present taxation laws, rulings and their interpretation as at 4th April 2017. You should seek independent professional tax advice before making any decision based on this information. Exelsuper Advice Pty Ltd CAN 080 419 holds an Australian Financial Services License 428272.

Book a Retirement Breakthrough Call