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So, you’ve decided to see a financial adviser. With 27,571 financial advisers and planners currently listed on ASIC’s Financial Advisers Register, you are not short of choice. Although too much choice can be daunting, especially if you’ve never consulted a professional adviser before.
You are also not alone. Roy Morgan research found that in May 2018 almost two million Australians (9.7% of the adult population) had used a financial adviser to purchase superannuation or managed funds. Those most likely to seek help are wealthy, with incomes above $130,000, Baby Boomers and pre-Baby Boomers. Men are also more likely to see an adviser than women.
Follow up research found that people with over $300,000 in wealth management funds were most likely to seek advice (41.9%), followed by those with $126,000-$300,000 (19.3%).
That doesn’t mean women, younger Australians, and those who are in the early stages of building wealth would not benefit from advice. It could be argued that these groups have the most to gain from high quality advice to help them set and achieve their financial goals.
Whether your financial affairs are simple or more complex, it’s important to take time selecting an adviser who is not only well qualified but the right fit for you. We’ve outlined five steps to help you make the right choice.
Step 1: Where to look for an adviser
A multi-pronged approach works well when you are starting your search.
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- Ask trusted friends, relatives and work colleagues for recommendations. A personal recommendation is not enough on its own to select an adviser because everyone’s needs are different. It’s also possible that you may not feel the same personal connection your friend or colleague does with their adviser. However, a personal recommendation may help you whittle down the list of advisers in your local area and give you confidence to make that initial call.
- Do an internet search for financial advisers in your local area or near your workplace. Check their website and social media pages to see what services they offer, if they have particular expertise or encourage certain types of clients, and comments from happy or dissatisfied clients.
- Use the ‘find an adviser’ service offered by the two leading industry associations for financial advisers. Both of these allow you to narrow your search by location. Once you have a short-list, click through to each adviser’s website to find out more.
- Review SuperGuide’s list of independent advisers, which we believe this is the most extensive list available.
Some advisers have expertise in areas such as retirement planning, SMSFs, aged care or life insurance. Others might work with occupational groups such as teachers, doctors, public servants with complex super schemes or small business operators.
While there are a lot of firms out there specialising in older, wealthier clients there are a growing number who are attuned to the needs of younger clients. Roy Morgan research found that Generation Z (people born 1991-2005) are the most likely age group to ask friends and family for advice about retirement planning, followed by Millennials (born 1976-1990). The people they are most likely to turn to are Baby Boomers, presumably their parents.
While that’s heartening, there are limits to the advice parents can offer. There are, however, financial advisers who encourage younger clients keen for guidance on budgeting, cash flow management and investing, perhaps in preparation for buying their first home or starting an investment portfolio. Many of these advisers are Millennials themselves who understand the needs of younger, tech-savvy clients who may want to communicate and receive advice in different ways to their parents.
Once you have a short list of advisers it’s time to do some due diligence.
Step 2: Are they licensed?
Before you approach advisers in person, check that they are qualified and licensed to do what they say they will do.
The financial services regulator, ASIC has an online ‘financial advisers register’ of individuals who are authorised to provide personal advice on investments, super (including SMSFs) and life insurance.
Note: Personal advice takes into account your personal circumstances, such as your objectives, financial situation and needs.
The register will tell you:
- The adviser’s qualifications, experience and employment history
- The types of products the adviser can provide advice on
- If the adviser is a member of a relevant professional body or industry association
- Whether the adviser has been subject to disciplinary action by ASIC
- The name and number of the Australian Financial Services (AFS) licence holder who employs or authorises them to provide advice
- Details about who owns or controls the licence holder.
This might seem like a dry and uninteresting list, but it could potentially save you a lot of money so don’t be tempted to skip this stage.
For example, the last dot point could alert you to potential conflicts of interest. Say the owner of the licence holder is a bank and the adviser’s only recommendations are products issued by that bank. This information may be something you should follow up with a question if you decide to meet with the adviser.
If you can’t find an adviser’s name on the register it means they are not operating under an AFS licence, so don’t do business with them. If anything goes wrong, you have no legal protection.
Step 3: Read their financial services guide
Advisers’ websites typically present a positive, friendly face and it can be difficult to find any reference to fees or who owns the business. But if you scroll to the bottom of the screen you should see a link to their financial services guide (FSG). If you can’t find it there, call and ask for a copy.
You should read the FSG of any adviser on your list before you follow up with a visit. It will tell you:
- What services they offer
- How they charge
- Who owns the company that employs them
- If they have links to a product provider such as a bank, fund manager or life insurance company
- Their AFS licence number.
This information should help you formulate a list of questions to take to your initial consultation.
Step 4: Questions you should ask an adviser
Most financial advisers offer a free, no obligation initial consultation. Make use of this to visit at least three advisers on your shortlist. Take the same list of questions to each adviser and write down their answers, so you have a firm basis for comparing them.
If you are married or part of a couple, it’s a good idea if you both attend these initial meetings. In a practical sense, it means one of you can concentrate on taking notes. But it will also help the adviser get a clear picture of your joint financial situation, your goals and any points of disagreement that may need to be negotiated.
Here are some questions to ask:
- What are your qualifications? Look for a diploma or degree in finance, economics, accounting or financial planning. Also look at length and type of experience, such as where they have worked and in what role.
- What do you charge? Advisers may charge on a fee-for-service basis, a percentage of the amount you have to invest, or a combination of both. There will typically be fees for preparing an initial statement of advice (SOA), fees for implementing advice, and ongoing monitoring and review. Ask for a breakdown of all fees and charges.
- Are there any other fees and charges you haven’t mentioned? Ask for an overall estimate of fees you will be charged on a dollar basis (rather than a percentage figure) so you can compare like with like when you have visited all the advisers you are considering.
- How are you paid? Is the adviser on a fixed salary or do they receive bonuses or other incentives for selling you products?
- What will I get for my fees? You may want to know what information will be in your statement of advice (SOA), how frequently they will monitor and review your investments, and whether you will get written reports or regular updates. The Hayne Royal Commission found that many advisers charged ongoing advice fees without actually providing any ongoing advice or service. If you don’t want ongoing advice you don’t have to pay for it.
- Can you advise me on my existing financial products? You probably already have money in super and perhaps have other investments outside super. Some advisers may want to shift your super into products on their approved list, or not be able to advise you on products not on their list. It’s important to know if the advice you will receive is likely to be conflicted, when what you want is an adviser who can offer the best products for your circumstances. Be wary of advisers who try to sell you in-house products from the bank or parent company who employs them.
- How will you communicate with me and how often? If you are looking for an ongoing relationship, you need to know if there will be regular progress reports, face-to-face meetings, market updates or SMS messages and if you can call your adviser when you need to.
- Are you independent? If possible, look for an independent financial adviser who is free of conflicts of interest.
Don’t feel uncomfortable about asking lots of questions. It’s a necessary part of the process if you are to separate the professional financial advisers from product salesmen and women.
Also be wary of advisers who receive referral fees from other related professional services. For example, an adviser may recommend you set up a SMSF to invest in property, then refer you to a property developer to help you find an investment property, an accountant to help set up your fund and a lawyer to take care of the legal requirements. If an adviser offers referrals, it’s important to understand if money or other incentives are changing hands.
Step 5: Watch for the (not so) little things
Fees and financial considerations are extremely important, but they are not the only thing that matters when choosing a financial adviser. The right adviser could be part of your life for many years and have a significant part to play in your future wellbeing. Like any long-term relationship, the little things count.
When you arrive at their office for an initial consultation, notice if they try to put you at ease and establish a personal rapport that feels genuine. Also note if they answer your questions openly or seem evasive or dismissive.
At your first meeting, as well as outlining their qualifications, experience and what they can offer, an adviser should also ask questions about you. To offer holistic advice, and not just products, they should ask about your current financial situation, your financial and life goals and the scope of advice you are looking for.
The more information you can provide at this stage, the more likely you are to receive appropriate advice and an accurate estimate of their fees.
Ultimately, you want a qualified and suitably experienced financial adviser you feel comfortable doing business with. You also want someone who will provide holistic advice that puts your needs first. The winning candidate may not be the cheapest, but they should offer fair and transparent fees for the services they provide.