While onlookers have witnessed a range of financial calamities during the global financial crisis, few stories appear quite as bizarre as yesterday’s announcement of charges being laid against a “gang” of German old-aged pensioners who allegedly kidnapped their financial planner. UK papers reveled that the pensioners “ambushed (their 56-year-old American financial planner) outside his home in Speyer, west Germany, where he was bound with masking tape and bundled into the boot of a car after being hit over the head with the walking stick of one of his kidnappers.”

In a plot that is unlikely to be made into a motion picture, it was alleged that kidnapping took longer than expected because the perpetrators “ran out of breath” while bundling their financial planner in an oversize cardboard box before wheeling him in a trolley into a waiting car.

The cause of the pensioners’ angst was the loss of their life savings — one of the couples who are alleged to have committed the crime is understood to have lost $3.6 million while their collaborators were retired doctors. It was reported that the planner who was the victim of the alleged crazed attacks, James Amburn, had advised the elderly kidnappers to invest in Florida property (which has fallen in value by up to 50%) and Kuwaiti funds.

While Australian pensioners who have lost money due to poor advice have, thankfully, not yet resorted to such drastic measures, the conflicts still prevalent in Australia’s system of financial planning are substantial. While moves by the Financial Planning Association of Australia are afoot, many planners are still paid on a commission basis. That is, planners are remunerated by the companies whose products they sell, rather than by their clients directly.

This system has resulted in several high-profile catastrophes in recent years. Most notably the collapses of Westpoint, Storm, MFS Premium Investment Fund, Timbercorp and Great Southern Plantations had one thing in common (other than alleged fraud or misfeasance) — in virtually all those cases, financial planners received substantial commissions (usually 10% of funds invested) from the companies themselves to push investors into their products. While by-law planners are required to provide investors with product disclosure statements and statements of advice that detail the fees received, most investors lack the sophistication or time to properly review those documents.

(Planners also receive “soft commissions” from companies selling financial products — these commissions, which range from advertising monies, free holidays or even bonus payments, do not necessarily need to be disclosed to investors).

Moreover, most of those investors (usually referred to as mums and dads) would not have been aware that their trusted financial planner was not acting in their interests, but in the interests of the people actually paying his or her wages. In the case of agribusiness company Timbercorp (which last year collapsed under a weight of debt), it even provided financial advisers with share options in Timbercorp itself if those planners were able to sell Timbercorp-managed investment schemes. The more money the planner convinced clients to invest in Timbercorp’s (now allegedly insolvent) schemes, the more Timbercorp options the planners would receive. Investors in MFS Premium Investment Fund faced a similar conflict — in some cases, their financial planner (from large financial planning firm Avenue Capital Management) was also a director of other MFS companies that receive fees and loans from the Premium Income Fund.

It is important to note that not all financial planners operate on a commission basis. Many planners charge using a fee-for-service model, such that clients pay an hourly rate, or a percentage of funds under management. Such a model makes more sense for investors (who would not need to receive advice from an “expert” whose interests are different to their own) and may avert the possibility of financial planner abductions.