Josh Callaghan, Canstar’s General Manager of Wealth
The problem for you and me is that these issues stretch back many years and legislation and regulation changes have only been successful in addressing some elements of the advice journey. Perhaps the most troubling thing for me in all of this is that industry’s record may deter consumers from seeking much needed financial advice. For this reason, I wanted to share with you the four areas that consumers should address when choosing or reviewing their financial adviser.
Does anyone want financial advice?
The Investment Trends 2017 Financial Advice report found that half of Aussie adults have areas where they would like financial advice but currently aren’t getting it. They also found that three million Aussies intended to use a financial planner for advice in the next two years.
There is clearly a need for advice in the market and some pent-up demand but these latest revelations aren’t going to do anything for building the trust of the advice industry.
Four things to address with your adviser
You need to take responsibility to educate yourself on your finances including what you’re paying for and what you’re getting.
First, fees. 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 up front 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 or the adviser is being shady about estimating the costs of advice then it’s a good initial sign that they may not be the adviser for you.
Regarding the ongoing fees, don’t pay them if you don’t believe you’ll get value from them. 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. These fees can be upwards of 1% of the value of your assets invested which, particularly in our current environment, is an extra return that I’d rather have in my account.
Second, what can they do. 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.
Thirdly, relationship. 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.
Finally, educate yourself. 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.
You can avoid many of the issues being uncovered through the Royal Commission by being more informed and taking responsibility for your financial plan and outcomes. 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 up front might be worth thousands in the future.
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About Josh Callaghan
Canstar’s General Manager for Wealth, Josh Callaghan, is the former General Manager of Wealth at Canstar and co-founder of Fintech Queensland. In his role at Canstar, Josh was responsible for the strategic direction, operations and commercial outcomes of the Wealth division, which includes Superannuation and Investments. He has over 19 years of experience in product management, strategy, technology and marketing in the financial services industry.