Danger: Beware of 'free' advice from that good old family friend

It's just really sad. Some of the worst financial situations I have seen over the years have been create by potential clients listening to the so-called 'free' financial advice of that 'good old family friend'.

That's who I'm going to call them. It might be your neighbour who told you what to do with your savings at a Sunday bbq, it could indeed be a relation who took you under their wing or gave you the good oil regarding your super.

They say they are only telling you what to do because they care and they're not going to charge you the way a professional advisor would charge you, so you're ahead right from the start. Sadly, free advice can be the worse advice.

This was highlighted to me in my financial planning practice recently. Without going too much into her details, a woman in her later fifties contacted me for advice. She was being offered a redundancy package - should she take it?

Years earlier she had received a significant pay-out from the TAC and a family friend had advised her on how to invest it. It was well meaning advice at the time but completely wrong.

The money should have been steadily contributed to superannuation over the years, where it could have increased in value in a tax benign environment and be ready for just this moment - when she wants to retire.

By having all her assets in superannuation, she could easily retire and receive a tax free account based pension and more, the assets within super supporting that pension would be tax free, both regarding capital gains and income.

Importantly, she could just add the money from her redundancy to her super, start an account based pension, retire, be financially secure and never need lodge a tax return ever again.

However, because the money was not steadily contributed to super over the years and because of the restrictions of when contributions to super can be made, even with the help of professional advice,  this will most likely take years now.

More if she had not sort professional advice, she would have been left for the rest of her life needlessly paying tax on these investments because a 'caring' family friend gave her 'free' advice.

Rather than free advice, I think that is the most costly advice you can access. Beware of the family friend providing you with free financial advice