What happens when you meet with a financial adviser

So if you are going to take the plunge and get professional advice, what can you expect? Read on for SuperGuide’s simple guide to the financial advice process.

How a financial adviser can help you

A financial adviser’s main role is to help you identify your financial needs and goals, and then tailor a strategy to help you achieve them. A licensed financial adviser can assist you with developing a financial road map for the next few years, and can suggest suitable tools (such as specific investment products or a new household budget) to help you on your way.

Ongoing financial advice can also help by providing regular reviews of your progress towards your financial goals and ensuring you remain on track financially.

Issues to consider when selecting a financial adviser

Choosing a good financial adviser involves doing some research and talking to several potential candidates. Some of the issues to consider when making your decision include the following factors:

• Financial qualifications and experience. For example, does the adviser mainly work with retirees, wealth accumulators or young families?
• Authorised products the adviser can recommend. Check out ASIC’s Financial Advisers Register to see which product categories an adviser is permitted to recommend (for more information on the register see SuperGuide article Super advice: How to find a suitable financial adviser is a starting point).
• Ability to advise on all of your existing investments. For example, is the adviser able to advise you on your current super fund, as the adviser may be restricted to his or her company’s Approved Product List.
• Total advice fee includes any additional costs.The total advice fee should be disclosed as a dollar amount, not just as a percentage of the amount you have to invest.

The advice process: what you can expect

Every financial adviser operates differently, but providing financial advice usually involves the following multi-step process:

1. Initial discussion: A face-to-face discussion with the licensed financial adviser to explain how he or she works through the advice process, and for you to outline what you want to achieve. This preliminary meeting is usually free.
2. Proposal: You receive a written proposal outlining your financial goals and the likely costs of the advice (and implementation, if relevant).
3. Adviser meeting: An in-depth meeting with the financial adviser to further explore your requirements, goals and current financial situation. This meeting will involve completing a ‘fact find’ about your personal circumstances and finances. You also agree to accept the adviser’s fee proposal for the advice and recommendations he or she is to prepare on your behalf.
4. Research and analysis: The adviser reviews your personal information and goals to identify appropriate strategies, and suitable products and investments. This information is then used by the adviser to prepare a personalised Statement of Advice (SOA) document.
5. Presentation of the SOA: You receive a written document from the adviser outlining the financial adviser’s recommendations and suggestions for appropriate financial strategies and investment products. (The SOA is explained in more detail later in the article).
6. Client agreement: You commit to pay the relevant fees for implementing the adviser’s recommendations in relation to your investment assets.
7. Implementation: The financial adviser puts into place the agreed recommendations, and assists you to complete any necessary forms to make the necessary investments outlined in the SOA.
8. Ongoing advice: If you agree to pay for it, the financial adviser will provide regular updates, and a personal annual review, to ensure the adviser’s recommendations remain appropriate for your financial goals, your approach to risk and your personal situation.

Meeting with the financial adviser

The initial discussion with a licensed financial adviser is important, as it gives you an opportunity to see if the adviser is the right person for you to work with, and whether you will feel comfortable talking to them about your private financial matters and personal goals.

Once you have selected your financial adviser, the second meeting usually involves a more in-depth discussion. The financial adviser will ask for detailed information to help him or her to understand your current position: the adviser can then develop tailored advice on strategies to improve your financial position, or achieve your goals. The information will be recorded in a document called a fact find or client data form and you will be asked to formally agree that the information about your financial situation is accurate.

To get the most from this process, you need to be prepared. Gather together all the current information you have about your financial circumstances (and your partner’s financial circumstances), including details of the following:

• Income: wages, salary, interest, rental income and dividends
• Expenses: household budget and expenses (for example food, clothing, telephone, internet and council rates) and lifestyle expenses (for example gym memberships and annual holidays)
• Debts: mortgage, credit card and debt repayments
• Investments: statements from shareholdings, other investments and bank accounts like term deposits
• Insurance: life, total & permanent disability, trauma and income protection policies
• Superannuation: annual statements from your fund

It may be worth contacting your financial adviser’s office before your meeting to check if they have a list of information you should bring with you.

Think about what you want to achieve

Aside from finding all the relevant paperwork, you also need to consider what you hope to gain from the advice process. Make a list of any:

• future lifestyle plans you want help in achieving (for example pay off your mortgage early, retire in a few years, or upgrade your home)
• specific financial issues you want advice about (for example, consolidating your super accounts, or building wealth and saving for retirement)
• major events you expect to occur (for example, the start of private schooling for your child, an upcoming family wedding, or an overseas holiday)
• issues you do not want the financial adviser to provide advice on (for example, switching your super fund or estate planning)

If you decide you want only limited or ‘scaled’ advice, the financial adviser will only address this specific area (for example increasing your insurance protection, or starting a salary sacrifice arrangement). For more information about the different types of financial advice, including the meaning of scaled advice, see the SuperGuide article What are the different types of financial advice available?.

Important: Ensure you give your financial adviser accurate and complete information about your personal circumstances. The information that you supply will be used to create your strategy and product recommendations. If you give the wrong information or hold back some details, the advice provided may not be right for you.

Determining your risk profile

A key part of the advice process is identifying your attitude (tolerance) towards financial risk which enables the financial adviser to select the most appropriate investment products and strategies for you. As the financial adviser asks questions and gets to know you, he or she will be attempting to work out how you (and your partner) feel about financial risk so they can ensure the financial products and strategies they recommend are suitable for you.

The aim of determining your risk profile is to establish how well you can tolerate financial risk and the inevitable ups and down of investment markets. For example, will you be comfortable with certain investments, or will you be unable to sleep at night (see SuperGuide article Super investing: What is your risk profile?)?

Financial advisers may use ‘risk profiling tools’ such as detailed questionnaires, life-cycle analysis or sensitivity analysis to determine how you feel about financial risk and what impact investment market movements will have on you.

After the adviser meeting: Expect a Statement of Advice

Once the financial adviser has gathered all the necessary information about you and your financial situation, he or she will develop a Statement of Advice (SOA). The SOA is required by the Corporations Act to ensure retail clients receive enough information to understand the personal advice they have been given and whether or not to follow it.

An SOA should contain the following details:

• Your risk profile.
• Risks involved with the recommended investment products and strategies.
• How the recommended products align with your personal approach to risk (risk profile).
• Pros and cons of following the financial adviser’s recommendations, including any benefits you may lose through switching products (for example, a high level of insurance cover from your current super fund).
• How the recommended products will make money and how they will help you achieve your financial goals.
• Reasons for choosing one product over another, or for suggesting you switch providers (for example, switching your super fund).

When you receive an SOA, make time to read it thoroughly and consider your adviser’s recommendations. Make notes about anything you don’t understand and ask the adviser to explain everything fully before agreeing to sign any documents.

Note: If you do not understand the SOA or the advice you are being given, do not be afraid to ask questions. A good financial adviser should be able to explain the products and strategies he or she is recommending you use in language you can understand. If the adviser cannot clearly explain their recommendations to you, don’t accept the advice.

Tip: Keep detailed notes. Although your financial adviser will be providing written advice, it is important for you to keep your own accurate records about your discussions in case something goes wrong.

If you have detailed notes of your conversations with the financial adviser and email a brief confirmation of your understanding of what was said, you will be far better placed if in the future you need to lodge a complaint or go to an external dispute resolution body, such as the Financial Ombudsman Service (FOS). For more information about lodging a complaint relating to financial advice, see SuperGuide article What to do if you have a problem with your super fund or financial adviser

Opting for ongoing advice

Once your financial strategy and investments are in place, you can opt to pay for an ongoing relationship with your adviser. This option involves signing an agreement to pay for ongoing advice, which normally includes an annual personal review of your strategy and investments; regular updates on the economy, markets and your investments; and implementation of any necessary changes.

With ongoing advice, it’s important to keep your financial adviser informed of your willingness to accept financial risk changes. Most people become less comfortable with the risk of volatility, or losing money,  as they get older, so make sure the financial adviser knows how you feel. For more information on your risk profile, see SuperGuide articles Super investing: What is your risk profile? and Super investing: Should you change your investment option?

If your financial affairs are straightforward and you have plenty of time to manage them yourself and stay abreast of current market developments, you may not require ongoing advice. However, if you do not agree to an ongoing advice agreement and you need to revisit your plan or make changes to your investments, you will need to pay another fee at that point.

For more information about financial advice, check out the following SuperGuide articles:

• What are the different types of financial advice available?
• Super advice: How to find a suitable financial adviser
• Independent financial advice: Why it’s important, and how to find it
• Find an Australian independent financial adviser
• SMSFs: What advice can an accountant provide?
• Financial advice: What are the risks and benefits?
• What to consider when looking for an SMSF provider
• Investment scams: What are they and how do you avoid them?
• How to find low cost (or free) financial advice
• What to do if you have a problem with your super fund or financial adviser
• How to plan for your retirement