Original author Josh Callaghan, Former Manager of Wealth at Canstar
What does a financial adviser do?
Before you engage with a financial adviser, it’s helpful to understand what they can assist you with. There are two elements to discuss with them:
- Advice – what elements can they give personal advice on? Investments, insurance, estate planning, retirement, tax etc.
- Product – how broad is the product set that they’re able to advise on. For example, can they advise on your current superannuation product, do they only advise on their own branded products (such as banks), are they able to advise on both direct equities as well as managed funds.
Assessing an adviser on these things is going to vary depending on what you’re expecting from them and what your individual needs are. Generally speaking though, the wider the breadth of advice areas and products on offer, the greater the access the adviser will have to information and choice which is often more beneficial.
What is the difference between a financial adviser, wealth manager, financial planner and investment adviser?
There are many different job titles and synonyms for advisers which can become quite confusing. While there may be some restrictions on who can call themselves a financial adviser, it can be beneficial to set the individual’s title aside and focus instead on the services you require, the fee structure of the firm you choose to go with, credentials of the person you’re engaging with and if the personality is the right fit for you.
How are financial advisers paid?
You need to take responsibility to educate yourself on your finances including what you’re paying for and what you’re getting. Generally, there are three main points at which fees are charged.
- Advice fee – this can be a flat fee or charged as a percentage of the amount you are investing, or a combination of both. This is upfront to cover the generation of a statement of advice.
- Execution fees – these will vary depending on what it costs to execute the advice, for example, it will incorporate brokerage costs, administration and paperwork related to establishing your investments.
- Ongoing fees – these can also be charged as a flat fee or a percentage of the amount invested and will cover things like annual advice reviews.
When shopping around for a financial adviser be sure to understand the amount and structure of each of these fee types so that you know what you’ll be up for. If you can’t make sense of the fee structure, it’s important to ask lots of questions and understand what you’re paying for. It’s important to ensure that the fee structure makes sense for the service you are receiving. For example, if you’re seeking advice for superannuation or an investment that is a long term, set-and-forget type strategy then having annual reviews and online access isn’t really going to provide much value.
How much will a financial adviser cost me?
The cost of a financial adviser will depend on the firm, your financial situation and goals, and the services you’re looking for. It is important to consider cost, however, it is also worth considering that what may be cheap advice today could cost you more in the long term. According to research from Investment Trends, the average amount an investor charged for full-service financial advice was $2,700 upfront where the average client had $770,000 in investable assets.
How will I know if my financial adviser is acting in my best interest?
You need to be able to trust your adviser. This is potentially the most important element in choosing an adviser, being able to trust them with your money and trust that they’re doing the right thing by you and your family. Going through the process of discussing fees, advice and product will give you a great indication of how well you and your adviser can communicate. If you feel like you can be honest and open with them and they’re giving you clear answers that show they are transparent and understand what you’re asking, then you’re off to a great start. Essentially, you need to feel you can share your personal aspirations and fears with your adviser and be confident that they are aligned with your goals.
How do I get the most out of financial advice?
Educating yourself is key. You need to understand and agree with what the adviser is recommending.
What many people don’t realise is that the really bamboozling part of finance is not in the sort of advice that is relevant for most people. You should be able to understand your financial plan and if you can’t, then it’s probably not the plan for you. Of course, there may be a few terms that you’ll need your adviser or Google to help you with, but understanding how the products and strategy recommended to you meets your financial goals should be clear.
I want to find a financial adviser. What next?
Being informed and taking responsibility for your financial plan and outcomes is key to achieving great financial advice. Have a robust discussion with your current or potential adviser and don’t be afraid to ask questions until you understand exactly what it all means. Small investments of your time upfront might be worth thousands in the future.
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