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The ongoing uncertainty caused by the pandemic and the spectre of rising inflation and interest rates is causing many people to take a fresh look at their finances.
For many of us, the turmoil means we need help and professional guidance on where to go from here and whether it’s time to update our current retirement plan. In fact, research firm Investment Trends has found over 60% of Aussies have unmet financial advice needs and an estimated 3.2 million are considering getting some form of advice in the next two years.
But knowing you need advice is one thing and figuring out what’s on offer and where to obtain it is another matter entirely. That’s where SuperGuide’s step-by-step checklist can provide an invaluable guide to what to expect if you do decide to seek some professional financial advice.
Step 1: Understand what advice is available
Although it can be tough to know what advice you need if you’ve never spoken to a financial adviser, the first step is to ask yourself whether you want help with your overall financial circumstances or just one specific issue.
The rules around providing financial advice in Australia are strictly delineated, with the main types being:
- General financial advice: This is general factual information about financial products and cannot include a recommendation or suggestion that a particular product is the best one for your particular situation.
- Personal financial advice: This is personalised advice by your financial adviser recommending a financial service or product after considering your individual objectives, financial situation and needs.
- Tax (financial) advice: From 1 January 2022, when financial advisers recommend a financial service or product, they cannot provide advice about its tax implications for a fee unless they are a ‘qualified tax relevant provider’. These advisers must have the necessary educational qualifications and be listed on ASIC’s Financial Adviser Register as a tax relevant provider. Tax (financial) advice includes areas like the tax impact of commencing a salary-sacrifice arrangement, transition-to-retirement pension, or your capital gains tax (CGT) liability if you sell some investments.
- SMSF advice: Financial advice is often necessary when establishing or running an SMSF. This is a specialised area requiring advice from an experienced financial adviser or an accountant who holds an Australian Financial Services Licence.
Step 2: Check out free and cheap information services
Believe it or not, there are places to get free or low-cost financial information and advice – although it will not be tailored to your individual circumstances:
- Government agencies: The Department of Human Services’ Financial Information Service (FIS) and ASIC’s MoneySmart website are good sources of free information. The ATO website also regularly publishes information on super, SMSFs and tax-related matters.
- SuperGuide website and newsletter: Although SuperGuide does not offer financial advice, it provides lots of current information, articles and tools on the super rules, retirement planning and the Age Pension rules. If you’re not already a subscriber, consider joining SuperGuide Premium here.
- Super funds: Most super funds offer their members:
- Online tools such as calculators to help you budget and manage your finances better, explore the impact of making extra contributions and work out the right level of insurance cover.
- Educational seminars on super and retirement. A financial adviser is often available to answer basic questions, but personal discussions require a follow-up appointment.
- Intra-fund advice on issues like changing your investment option, increasing your contributions into the fund, your insurance cover provided by the fund and the types of cover that might be suitable for you and nominating a beneficiary. This is simple information only and can’t tell you what to do. For example, it can’t cover advice on whether you should switch super funds, consolidate several super accounts into a single fund, invest in financial products outside super, or how to establish your personal retirement plan.
Step 3: Decide the level of paid advice you need
Although free or low-cost information is great, if you need more detailed advice, you’ll need to pay for it. This is what ASIC calls personal advice, but you can still choose the level of advice:
- Limited or ‘scaled’ advice. This is advice about a particular issue and doesn’t take into account your full financial situation. It addresses a specific area or issue, such as whether to increase your insurance cover or the best way to make personal super contributions.
- Full or ‘holistic’ advice. If you need help with your overall financial situation through a comprehensive financial plan, you need holistic advice. This covers budgeting, retirement planning, starting a pension, investments outside super, insurance and planning how your assets and estate will be distributed after your death.
- Ongoing advice. With this type of advice your adviser monitors your investment portfolio and reviews your financial plan on a regular basis.
Step 4: Select who to ask for advice
Both limited and full financial advice is readily available from:
- Super funds. Most funds have licensed financial advisers on staff or have an agreement with a licensed advisory firm to provide personal financial advice to fund members. On-staff advisers are paid a salary and do not receive incentives, bonuses or commissions for their advice to fund members.
- External financial advisory firms. These firms are selected by your super fund, which often negotiates a set of principles to ensure the interests of fund members are protected.
Some super funds permit super-related advice fees to be deducted from your super account balance, but you will be provided with information about this option when you speak to the adviser.
- Advisory firms. Financial advice is available from small local firms, national advisory networks and licensed employees of many banks and large financial institutions (although most of the bigger banks have sold their advice arms following the damning Hayne Royal Commission into financial services). Whichever advice provider you choose, the individual adviser should be licensed and listed on ASIC’s Financial Advisers Register to ensure they have the necessary qualifications and experience.
Step 5: Work out the cost of advice
Fees for financial advice depend on the complexity of your financial situation and the services you need, plus the method of charging used by your chosen adviser. Typically, it’s free to attend an initial consultation to discuss your needs and the adviser will then provide information about the likely costs.
If you decide to proceed, you will receive a written quotation to sign prior to a fee being charged.
Normal advice costs include:
- Statement of Advice (SOA) fee. Your adviser will write a formal document outlining their recommendations and financial plan. The one-off SOA fee is based on the complexity of your particular situation and can vary considerably, ranging from several hundred dollars to a few thousand dollars.
Usually you can either pay the fee yourself, or have the cost deducted from your investments. The SOA fee must be paid even if you decide not to proceed with the recommendations.
- Implementation fee. Once you accept the adviser’s recommendations, there is often an administration fee for implementing them. The amount depends on their complexity, but it is usually a few hundred dollars.
- Ongoing service fees. If you want ongoing services such as regular reports on your portfolio, or annual reviews with your adviser, these are additional costs.