After the major shake-up of the super system in July 2017, Australians saving for their retirement, or now in retirement, face a revised set of rules when it comes to their super contributions and super pensions. Unfortunately, the new rules have not made things easier to understand and many of us still need financial advice to make an informed decision.
Background: For more detailed information about the latest super rules – including the July 2017 changes, and July 2018 changes – see SuperGuide article Latest superannuation rules: 2018/2019 guide.
While knowing you need advice is one thing, actually figuring out what is on offer and where you can obtain advice is another important step. To help, SuperGuide has created this simple step-by-step checklist to guide you through your financial advice experience.
Step 1: Understand the types of advice available
Although it can be tough to know what you need if you’ve never spoken to a financial adviser before, ask yourself whether you want general information about a financial product (e.g. insurance or shares), or more specific advice about a particular financial product or products. Or do you need help with your overall financial circumstances (e.g. your current finances or retirement plans), or advice about the tax implications of a financial decision.
The rules around providing financial advice in Australia are very strict and are supervised by the regulator, the Australian Securities and Investments Commission (ASIC). The main types of financial advice are:
- General financial advice: This is general factual information about financial products and cannot include a recommendation or cannot suggest a particular product is the best one for your particular situation. General financial advice is designed to help you to make your own decision about super, insurance or investments.
- Personal financial advice: With this type of advice, an adviser will recommend a financial service or product after considering your individual objectives, financial situation and needs. The adviser then documents the recommendations and explains why the recommendations are suitable for you.
- Tax (financial) advice: Generally, when financial advisers recommend a financial service or product they cannot provide advice about its tax implications, unless they are registered with the Tax Practitioners Board. This includes situations like the tax impact of commencing a salary sacrifice arrangement, or a transition to retirement pension, or your capital gains tax (CGT) liability if you sell some investments.
- SMSF advice: Financial advice for SMSFs is often necessary when setting up an SMSF, including when starting a super pension, and perhaps when developing and documenting the fund’s investment strategy, including deciding on your fund’s asset selection. This is a specialised area requiring advice from an experienced financial adviser. Note that accountants must hold an Australian Financial Services licence to provide SMSF product advice, although accountants can provide some SMSF-related advice without a licence. For more information on SMSF advice and accountants, see SuperGuide article SMSF advice: Is your accountant still allowed to help your fund?
Reminder: If you are seeking tax advice (and many superannuation strategies involve taxation issues) about your personal situation, you will need to speak to an accountant who is a registered tax agent and for some types of tax advice, the accountant also needs to be licensed to provide financial advice. Alternatively, you will need to speak to a financial adviser who is registered with the Taxation Practitioners Board.
Step 2: Check out free and affordable information services
Believe it or not, there are places to get free or low-cost financial information, or low-cost advice – although it will not be tailored to your individual circumstances. Set out below are some free, or low-cost options:
- 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 provide financial advice, it does provide current information on the superannuation rules, including many articles and tools about retirement planning issues. SuperGuide also provides comprehensive information on the Age Pension rules, and how super and the Age Pension rules interact. Although some of the information on SuperGuide is free, the bulk of the SuperGuide service can be accessed by paid subscription. If not already a subscriber, information about joining SuperGuide Premium can be found on this page.
- Super funds. Most super funds offer their members free or affordable financial assistance:
- Online tools. Website calculators, supplied by many super funds, can help you to budget and manage your finances better, explore the impact of different options (such as making extra contributions), and work out the right level of insurance cover.
- Educational seminars. Topics usually relate to superannuation and retirement. There is often a financial adviser available to answer basic questions, but personal discussions will require a follow-up appointment.
- Intra-fund advice. Most industry funds and public sector funds provide this type of financial advice. However, it can only be ‘general advice’ (refer earlier) and intra-fund advice covers topics like making a choice about your investment option, super contributions strategies including salary sacrifice and personal contributions, nominating a beneficiary, planning the best ways to maximise your super for retirement, and your level of insurance cover within the super fund. Intra-fund advice is designed to provide easy access to simple advice, but cannot cover switching super funds, financial products outside super, or advice on general retirement planning.
For more about the information and advice services listed above, check out the following SuperGuide articles:
Step 3: Decide the level of paid advice you need
Although free or low-cost information or advice is great, if you need more detailed advice, or would like help with your overall financial position, you will need to pay for it. This is what ASIC terms ‘personal advice’, but you can still choose the level of advice provided, as set out below:
- Limited or ‘scaled’ advice. This is advice about a particular issue and does not take into account your full financial situation. It is usually more affordable than full advice. Limited advice addresses a specific area or issue, such as whether to increase your level of 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. It covers areas like 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. It usually includes face-to-face meetings about your situation.
Step 4: Decide who to ask for advice
Both limited and full financial advice is readily available. Typical sources include the following:
- Super funds. Most super funds have licenced financial advisers on staff, or have an agreement with a licensed advisory firm to provide advice to their members. On-staff advisers are paid a salary and do not receive incentives, bonuses or commissions. Note that advisers employed by a super fund do not satisfy the ‘independence’ definition when providing advice (for more information on independence, see SuperGuide article Help! How can we find independent financial advice?)
- External advisory firms are selected by the super fund, which often negotiates a set of principles to ensure the interests of their members are protected. Super funds often permit super-related advice fees to be deducted from your super account balance.
- Advisory firms. Financial advice is available from small local firms, national advisory networks, and licenced employees of the big banks. Whichever advice provider you choose, the individual adviser should be licenced and listed on ASIC’s Financial Advisers Register to ensure they have the necessary qualifications and experience (see SuperGuide article Seeking advice? Financial Advisers Register is a starting point). Again, note that only a handful of financial advisers satisfy the ‘independence’ definition when providing advice (for more information on independence, see SuperGuide article Help! How can we find independent financial advice?
Reminder: Every licenced financial adviser must act in the client’s best interest, provide appropriate advice, and not accept conflicted forms of remuneration.
Note: Accountants can provide tax-related advice (assuming they are registered tax agents), and certain types of financial guidance (such as broad asset allocation advice and SMSF administration and compliance services). If an accountant is going to provide you with limited or full financial advice, or SMSF product advice, then an Australian Financial Services licence is required. For more information on SMSF advice and accountants, see SuperGuide article SMSF advice: Is your accountant allowed to help your fund?
Step 5: Work out the cost of advice
The fee for your financial advice will 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 is free to attend an initial consultation to discuss your needs and the adviser will 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.
Advice costs you can expect, include:
- Statement of Advice (SOA) Fee. The adviser will write a formal document outlining their recommendations and financial plan. SOA fees are based on the complexity of your particular situation, with limited advice usually costing between $350 and $900. An SOA for full or holistic advice normally costs between $2,500 and $5,500. Fees for preparing an SOA are invoiced directly, or you can choose to have the cost deducted from your investments. The SOA fee must be paid even if you decide not to proceed with the recommendations. SOAs relating to insurance may be free, as the adviser is paid a commission by the insurance company.
- Implementation fee. Once you accept the adviser’s recommendations, there is often an administration fee for implementing them, with the amount depending on their complexity. These often start around $100 for a simple financial plan.
- Ongoing service fees. If you want ongoing services such as regular reports on your portfolio, or annual reviews with your adviser, there are additional costs. The fee for a comprehensive review with an adviser is generally around $1,100 for one person or $1,700 for a couple.
Important note: If you have problems with your financial adviser or the intra-fund advice provided by your super fund, the first step is to contact the super fund or financial adviser about your complaint. If you are not satisfied with the response you receive, take the matter to the external body responsible for handling complaints in that area. For more information on advice complaints, see SuperGuide articles Problem with your adviser or super fund? A 2-step plan to resolve it!, Super complaints: What happens when your super fund lets you down? and New authority (AFCA) for super complaints now open for business.
For more information…
For more information about financial advice, check out these SuperGuide articles:
- Financial advice guide: What to expect when you talk to an adviser
- Seeking advice? Financial Advisers Register is a starting point
- Help! How can we find independent financial advice?
- Financial advice: Only 123 independent financial advisers in Australia
- Six dangers when seeking financial advice
- Investment scams target males aged 50-plus
- How many financial advisers operate in Australia?
- Free retirement planning assistance now available
- Cheap financial advice available from super funds
- Financial advice for super: Is it worth the money?
- SMSF advice: Is your accountant still allowed to help your fund?
- Problem with your adviser or super fund? A 2-step plan to resolve it!
- Financial freedom: Retirement planning in six steps