Trust has always been a barrier for some Australians seeking financial planning advice. We often feel more comfortable seeking information from friends and family rather than professional advisers, but this approach can create its own problems.
There can be complex legal, tax and Centrelink rules to consider when making financial decisions and these rules can change frequently. While it’s important to understand as much as you can when making decisions about insurance, investment or retirement planning, it can also be hard to know all the ins and outs of each strategy or product. This is where good professional advice can in some cases make a difference.
Choosing a financial adviser
One of the first things you should do is work out what your needs are and who to see.
As well as financial advisers, other sources of support and advice include financial counsellors, insurance brokers, mortgage brokers, websites like Canstar and even your superannuation fund. If you need advice about tax, you may want to see an accountant. If you are thinking about your estate planning arrangements (such as a will) then a solicitor may be able to help.
Ideally, a financial adviser will look at cash flow, debt, tax and estate planning as part of your overall needs, but may focus on investment, insurance, and retirement planning advice. Some specialise in certain types of advice, such as transition into aged care, or self-managed superannuation funds, so think about whether you need this expertise.
If you’ve decided that a financial adviser is the best professional to help with your advice needs, finding one who offers the services you are looking for is a good start. A good starting point can be to ask for a referral from friends, family or work colleagues, or professionals you already have a relationship with such as your solicitor or accountant. Use this information to create a shortlist of possible financial advisers, and then check their history, qualifications, current employment status and what products they can advise on using ASIC’s Financial Advisers Register. You can also check the Enforceable Undertakings Register to see if the Australian Securities and Investments Commission (ASIC) has taken action against them.
Don’t be afraid to shop around and meet with a few financial advisers before committing to the advice stage. Many financial advisers offer a free or low-cost initial meeting, and this can be the perfect opportunity to find out information about their background, the advice they provide and the costs involved, as well as if they are a right ‘fit’ for you.
Who owns the business, and who is the licensee?
By law, any individual or business providing general or personal financial advice must either hold an Australian Financial Services (AFS) licence or be an Authorised Representative of a licensee. The licensee is responsible for ensuring that the Authorised Representative has the appropriate education and skills to provide advice and are meeting all their compliance obligations.
Some financial planning businesses are licensed through a large AFS licensee, while other ’boutique’ practices may hold their own AFS license. Because of the nature of the financial advice industry, you may think you’re dealing with an independent business or person, but they may have affiliations to banks or financial product providers, so it’s important to understand exactly what the relationships are and how this may influence the advice being provided.
For the same reason, you should ask about the business ownership. While most financial planning practices are owned privately, some are owned by institutions that also manufacture financial products, which may lead to a conflict of interest.
You can use the Financial Advisers Register to check the financial adviser’s licensee, and the details will also be in the Financial Services Guide (FSG) that a financial adviser is legally required to give you before they provide you with advice. It’s a good idea to ask them to explain each section of the FSG, including details about their licensee relationship, as well as ask questions about their education and experience.
Education, experience and ethics
Financial planning is a highly regulated industry and education standards have gradually been increased over the past 20 years, but as the Royal Commission has shown, this hasn’t necessarily translated into more ethical behaviour or better advice. So how can you do your best to choose a financial adviser who will act ethically?
While it may seem an obvious question, ask them why they are a financial adviser. The answer can provide an insight into what led them into the role and motivates them to stay. Ask about their ideal and typical clients. Have they have worked with people who have similar needs as you? What’s the average length of their client relationships? Do clients continue to seek advice over a long period of time? Have many clients stopped seeking advice and why did they leave? These questions can help you understand if the financial adviser is focused on building long-term relationships or has a high turnover of clients – the latter can be a red flag. You can also see if they have any reviews at Adviser Ratings.
As with any professional, the more education and experience a financial adviser has, the more likely they will have the knowledge and skills to fulfil their role. Consider asking about:
- their formal qualifications and the continuing professional development they’ve completed to keep up-to-date
- their professional and industry memberships. Most associations require their members to complete ongoing training and follow a code of ethics, and have a process for handling complaints
- whether they’ve received any disciplinary actions from their professional association, licensee or ASIC, and if they have, what was the nature of the issue and the outcome?
The fine print
Ask the financial adviser about the areas they can give advice on, the services and products they offer and the fees they charge. All these areas should be detailed in the FSG. Most financial advisers follow a similar process when providing financial advice, and there are certain legal requirements such as putting recommendations in a written Statement of Advice. You can read more about Canstar’s description of the financial planning process here.
Deciding to proceed
Even if you’ve had an initial meeting with a financial adviser, you shouldn’t feel obliged to move to the next step of paying for advice. You can take time to decide whether you want to continue with the advice process and, if so, which financial adviser you want to work with based on their ability to meet your needs and help you achieve your goals.
After all, it’s your money, your life and your future, and the right advice can make a big difference.
About Jenny Rolfe-Wallace
Jenny is the Founder of Sprout Education Group (#Sprout_Ed), providing innovative programs, workshops and resources to help Australians build their financial capability and wellbeing.