How to find the right financial adviser for you
The ABC recently posted a very good article about how to find the right financial adviser for you. A direct link to the article is here - But just in case the link breaks the full article is as follows:
When it comes to getting financial advice, it's imperative to find someone you trust.
But with the financial services royal commission revealing a culture of greed in the financial advice industry, it's hard to know where to turn for advice.
Almost half of Australian adults have unmet financial advice needs, according to the Productivity Commission.
One of those looking for help is 31-year-old Daniel from Melbourne, but he's sceptical about the industry.
"I've started to earn a bit more money for the first time in my life," he said.
"I work long hours, I want to do the best for myself. I don't want it to go to waste."
He asked the ABC Personal Finance project for help with how to choose a financial planner.
"In its simplest form, a financial planner just helps you achieve your financial goals," Financial Planning Association of Australia chief executive Dante De Gori said.
He said a financial planner could help people at any life stage with any financial issue, from budgeting, to buying a house, to superannuation.
"They're there to enable you to live the life you want to live. And I think the essence of that is a plan," he said.
Professor Gail Pearson, consumer law and financial services academic at the University of Sydney, said there were some areas that were focal points for financial advice.
"This is if they are approaching retirement and need to make decisions about superannuation and other investments," she said.
It can also be useful if you have a significant amount of money to invest, say from an inheritance or compensation payout, but Professor Pearson said many people don't actually need a financial adviser.
"For many people, the amount of money they have does not warrant a financial adviser," she said.
"They would be much better off simply leaving their money in the bank or investing directly."
If you decide you do need a financial planner — who's really independent?
If you do decide to hire a financial adviser, Professor Pearson said it is important to find out about any potential conflicts of interests.
"The big issue is how to choose a financial adviser who will act in your interests, rather than in the interests of the financial adviser, or the group to which the financial adviser is aligned," she said.
Unfortunately, there's no easy way to tell if a planner is independent, just by looking at their company name or credentials.
The key is to ask questions to find out about any conflicts of interest and whether you feel comfortable with it — part of that comes down to how they are licenced with ASIC.
Company-owned: About 45 per cent of advisers operate under a licence controlled by the 10 largest financial institutions. They might be directly employed by the company or part of an external network.
The big four banks and AMP all came under fire for their financial planning practices, which included charging "fees for no service", using their teams of advisers to sell their own products and putting shareholders first at the expense of clients.
It's important to note that since the royal commission, the Commonwealth Bank, NAB, ANZ, Westpac and the Bendigo Bank have announced they will sell their financial planning arms over the next few years.
Independently licenced: These are typically small to medium businesses that have their own licence directly with ASIC.
In the past, advisers received commissions from selling a bank or financial institution's products, for instance a superannuation or investment product.
While most new commissions from investments and superannuation have been banned as part of the Future of Financial Advice reforms, there's still one product they can get a kickback for.
"In terms of an ongoing basis, life insurance is the only product that a financial adviser or planner is able to receive commissions from," Mr De Gori said.
"These have been capped, so effectively the capping will be 60 per cent of any upfront premium."
But be aware, there are still "grandfather arrangements" for commissions on products that were sold before the legal changes (if Labor wins the federal election, but if the Coalition wins it will hold a review regarding trailing commissions).
"It's really about transparency," Laura Higgins from ASIC's Moneysmart said.
"Just because they're getting a commission doesn't mean it's not the best product for some people, you don't want to discount it completely."
Truly independent: There are very few truly independent financial advisers — only about 60 across the whole of Australia who are members of the Independent Financial Advisers Association of Australia (IFAAA).
"Being independent is a bit like being pregnant, you either are or you aren't," IFAAA president Daniel Brammall said.
"Independence is about impartiality, conflicts of interest or conflicts of duty."
To qualify, they can't be associated with a bank, insurance or investment company (a product manufacturer), receive commissions of any sort and can't charge asset-based fees.
So how do I choose one?
"You can't just show up to an appointment and be a passive participant," Ms Higgins said.
"It's a relationship you need to own. Doing research is important. Thinking about why you're going is important."
Mr De Gori suggested short-listing several advisers and reading their financial services guide (usually on their website), which will cover their services, what they charge, if they have links to a product provider etc.
Then, he advises arranging to meet them face to face.
"What you should be finding out first is what their process is — don't be afraid to ask all the questions that you're thinking," he said.
"That's why it's important to see a couple of different advisers so you can compare."
Keep in mind that over the next five years, strict new rules are being introduced for the financial planning industry.
Previously, some financial planners were qualified to provide advice after just four days of training.
The new professional standard framework was introduced for new advisers in January, but by 2024 all existing advisers will need:
- A relevant bachelor's degree
- To pass an exam
- Meet continuing professional development requirements
- Comply with a code of ethics
How much should I expect to pay?
There are several different fee models — some might charge an upfront fee or you may be required to pay a percentage of assets under management.
The FPA says the average upfront cost to receive advice is about $2,500, or $3,500 per annum if you have an ongoing relationship with an adviser.
Should I just stick to my accountant or go to a financial counsellor?
Many people also wrote in to the ABC Personal Finance project asking about whether they should get advice from an accountant or financial counsellor instead.
An accountant, unless they are licenced as a financial planner with ASIC, can't give you financial advice (and a financial planner also can't do your tax returns unless they're registered to do so).
A financial counsellor is government-funded and independent and usually helps people in debt.
"Financial planners help people who have money to invest. Financial counsellors help people who generally don't have enough money," Financial Counsellors Australia chief executive Fiona Guthrie said.
"A financial counsellor is on your side, not that of a bank or a utility or a telco."