Financial advice is important but it’s the independence of the advice that takes precedence over all else. It’s a truism that many Australians don’t like paying for advice. As a result, they often don’t achieve the returns on their investments they should get with trusted, quality advice. So many people think they can do it alone and save money by not paying an adviser’s fee. This is false economy because a good adviser should not only get you a good strategy, engage you in the investment process, teach you more about money (even if it’s only by being exposed to what they do for you) BUT they should also save you money in strategic budgeting, tax savings, superannuation strategies and time you could spend better elsewhere.
It’s up to you as a customer to make sure you’re getting all of this.
I MC’d a conference last year for an association that represents financial advisers – it was a 3-day event, well run and highly educational. One presentation pointed out to their adviser members that there was such a great opportunity out there for them because most Australians need but don’t get financial advice! That’s such a positive way of interpreting that data.
At some stage when you accumulate money and you’re interested in being more involved with your investments, you should consider financial advice. If you have your money in an industry super fund, that’s fine, but you don’t receive advice unless you pay for it.
If you are looking for an adviser, here are some questions to ask at your first meeting (before you sign up) via zoom or in person:
1. Do you have your own financial services licence?
This is an important question because it shows true independence, which means the adviser is not operating under the umbrella of a firm that encourages the advice to push certain financial products.
2. How do you get paid?
Advisers can receive payment a number of ways but there’s really only one way that’s conflict-free: paying a fee-for-service just like you pay an accountant. Fee-for-service advisers might charge a percentage of the assets they manage for you (1% is common) or a flat fee for service. The trouble with a percentage fee is that if you have $500,000 to invest, you’d pay $5,000, but if you had $1 million, then you’d pay twice as much! You should only pay more if you are more complicated or you expect more work to be done.
3. What are my all-up costs?
As well as paying the adviser for their knowledge and work, there could be fees for software platforms or fees that funds charge if the adviser puts you into a managed fund. That’s why you need to ask what the all-up costs are. And don’t forget, if you’re a taxpayer, then the adviser fees for ongoing service should be tax deductible.
4. What are your qualifications?
An adviser must hold specific qualifications and must always engage in study to keep their knowledge up to date.
5. What will you do for me?
The first thing an adviser must do is write you a plan. Unless you’re classified as a sophisticated investor (which not only means you have lots of money but also you’re really smart about how to invest it), then the adviser MUST by law write you a plan – and it should be comprehensive, taking into account your financial goals and also what level of risk you’re comfortable with. An adviser MUST always invest your money in line with your risk tolerance, not theirs. We all have different risk appetites.
6. How often will I meet you?
It’s important to see your adviser from time to time just to check in, and even more important to have one complete and detailed review a year. This should be part of your retainer agreement.
7. Who makes all the investment decisions?
It’s important to ensure you have the same investment philosophy, which means you have to tell your adviser if you only want to invest in businesses that have good cultures or say aren’t linked to gambling or alcohol. At the end of the day, you and your adviser should become a team. Make sure you ask lots of questions, so you’ll grow money smarter over time, which means you can better direct your adviser so he or she gives you what you want.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
