Ahead of an anticipated wave of bankruptcies due to COVID-19-related economic stress, the Australian Financial Security Authority has ramped up its efforts to educate consumers about the dangers of “dodgy” financial advice.
In a statement, AFSA said it was “concerned that people experiencing financial distress because of the economic impacts of COVID-19” might be easy targets for unscrupulous advisers given that people are looking for a “quick fix.” AFSA added that such advisers “take advantage of people who are financially vulnerable and encourage them to do things which are illegal, unhelpful, damaging and not in their best interests.”
Specifically, AFSA called out advisers who promise large payments to get clients out of bankruptcy; recommend clients get out of bankruptcy early by telling them to include false or exaggerated debts in their bankruptcy applications; offer to organise clients’ affairs so as to protect their property should they go bankrupt; and advise clients that bankruptcy won’t have an effect on their credit rating.
It’s an interesting warning to be issuing at this specific moment given the recent criticism the Government has faced regarding its handling of the advice industry – both from industry associations and the opposition.
It also occurs alongside the sobering comments made by RBA Governor Philip Lowe when announcing the reserve bank’s decision to cut the cash rate to 0.1% and introduce a massive $100 billion six-month Government bond-buying program.
Lowe said the RBA expected it will take time for the damage COVID-19 inflicted on the Australian economy to be repaired and that “it is highly likely that the recovery will be uneven and drawn out.” In particular, Lowe said Australia is facing long periods of unemployment and stagnant wage growth.
During such a time, as Vanessa points out in her article today, it is likely the demand for financial advice will see a significant increase, assuming people know how to get it. As we explore in the CPD-accredited first part of the latest season of Secrets of the Money Masters, there are many Australians who have been “successful” in their savings and investment strategies thus far, only to encounter serious challenges once COVID-19 reached our shores.
None of the people profiled in the series sought financial advice at the time, and one of the key discussion points in the show is how advisers can reach and help people in similar situations.
One does wonder, in that context, how stark warnings about advisers preying on those who are teetering on the precipice of bankruptcy may affect people’s willingness to get the help they need.
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