8 questions to ask your financial adviser - From ProAdviser


Published on

Finding the right financial adviser is important, but unfortunately the industry is complicated, not very transparent and there are quite a few rogue financial advisers out there. To make the search easier, ask your financial adviser these questions to identify if they are good or bad.

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

8 questions to ask your financial adviser - From ProAdviser

  1. 1.                                                                         8  Questions  You  Need  To  Ask   Your  Financial  Adviser       www.proadviser.com.au   Australia’s  online  marketplace  where  clients  can  get  quotes  and   contact  pre-­‐screened  quality  financial  advisers  
  2. 2.     Page    2       WHAT  YOU  WILL  LEARN     FROM  THIS  E-­‐GUIDE     3.     Introduction  –  Why  You  Need  a  Financial  Adviser   4.     The  Role  of  A  Financial  Adviser  in  Australia   5.   Who  Can  Give  Financial  Advice  in  Australia   6.     Independent  Financial  Advisers  in  Australia   7.     New  Regulations  For  Finance  Advice   8.     The  Opportunity  Available  To  You   9.   The  Costs  Of  A  Financial  Adviser   10.     8  Questions  You  Need  To  Ask  Your  Financial  Adviser         www.proadviser.com.au      
  3. 3.                 Page    3     INTRODUCTION   Recent   surveys   from   ASIC   (Australian   Securities   &   Investment   Commission)   shows   that  approximately  60-­‐80%  of  Australians  have  never  seeked  advice  from  a  financial   professional.  This  is  quite  shocking  as  money  (or  the  lack  of  it)  directly  impacts  the   type  of  life  we  can  have.       Not  only  does  money  affect  the  materialistic  parts  of  our  lives,  such  as  the  dream   house,  car  or  holiday,  money  affects  our  children’s  education,  health,  relationships   and  pretty  much  every  aspect  of  our  life.     We   seek   advice   for   many   important   things   in   life,   but   considering   that   money,   knowingly   or   unknowingly,   is   such   a   key   part   of   our   lives   we   do   not   seek   professional  advice  on  it.       Why  is  this  a  problem?       Due   to   the   advancements   in   modern   science   we   are   living   longer,   and   healthier   lives.  This  is  fantastic,  but  from  a  wealth  management  standpoint,  this  is  a  risk  as   we  need  to  plan  and  ensure  our  money  not  only  allows  us  to  live  when  we  retire   but  also  allows  us  to  have  some  fun.     It  is  therefore  imperative  that  our  personal  financial  situation  is  in  order  and  that   we  have  a  financial  plan  that  will  help  us  in  all  stages  of  our  lives.     www.proadviser.com.au      
  4. 4.     Page    4       THE  ROLE  OF  A  FINANCIAL  ADVISER         A  financial  adviser,  also  known  as  a  financial  planner,  is  like  your  personal  wealth   coach.     A   good   financial   adviser   will   first   take   the   time   to   understand   your   entire   personal   situation,   goals   and   objectives   and   provide   you   financial   strategies   that   will  help  you  reach  your  goals  and  objectives  in  each  stage  of  your  life  cycle.     Like   a   sports   coach,   a   financial   adviser   is   there   to   guide   you   in   the   right   direction.   They   will   constantly   monitor  your  situation  and  will  tailor  your  financial   plan   along   the   way   to   maximise   your   financial   potential.   It   is   ultimately   up   to   you   to   understand   the   financial   plan   and   implement   the   strategies   as   advised.     Financial  advisers  are  very  knowledgeable  and  it  is  common  for  many  clients  to  use   their   adviser   as   the   first   point   of   call   for   any   financial,   taxation   or   legal   matter.   Financial   advisers   will   be   able   to   assist   if   the   matter   is   within   their   licence.   If   the   matter   falls   outside   their   licence,   financial   advisers   will   work   closely   with   accountants  and  lawyers  who  will  be  able  to  assist  you.     A  good  financial  adviser  will  be  able  to  help  with  the  following.     • Help  you  identify  your  financial  and  lifestyle  goals.   • Give  you  the  support  and  guidance  to  reach  those  goals.   • Identify  the  financial  resources  and  opportunities  available  to  you  to  help  you   grow  your  wealth.   • Identify  opportunities  to  help  you  minimise  tax.   • Help  you  protect  your  assets,  income  and  overall  financial  position.   • Help   you   prepare   for   life   events   such   as   career   changes,   having   children   or   retirement.   • Help  you  simplify  your  finances.   • Give  you  the  peace  of  mind  that  your  financial  future  is  secure.   www.proadviser.com.au      
  5. 5.     Page    5                 WHO  CAN  GIVE  FINANCIAL  ADVICE   ?     In   Australia,   professionals   that   are   authorised   representatives   of   an   advisory   business   that   holds   an   Australian   Financial   Services   Licence   (AFSL)   are   legally   allowed  to  provide  you  with  Financial  Advice.  These  are  financial  advisers.     Additionally,  the  scope  of  advice  that  can  be  given  by  financial  advisers  is  limited  to   what  their  AFSL  permits.  For  example,  an  advisory  business  that  operates  under  a   particular   AFSL   licence   may   only   be   allowed   to   advice   on   superannuation   but   not   on  insurance.       Before  dealing  with  a  financial  adviser,  it  is  important  to  check  that  the  adviser  is  an   authorised  representative  of  a  licenced  advisory  business  and  that  the  advice  they   provide   is   within   the   scope   of   the   AFSL.   You   can   check   licence   details   by   visiting   ASIC’s  online  register:     https://connectonline.asic.gov.au/RegistrySearch/faces/landing/ProfessionalRegist ers.jspx?_adf.ctrl-­‐state=z95dh4ifa_4     There   have   been   unfortunate   instances   where   individuals   have   unlawfully   used   the   AFSL   licence   of   another   advisory   business   as   their   own   to   provide   unsolicited   financial   advice.   Please   ensure   that   you   make   the   necessary   legal   checks   before   obtaining  any  advice.   www.proadviser.com.au      
  6. 6.     Page    6                 INDEPENDENT  FINANCIAL  ADVISERS   ?  Australia,   of   the   18,000   authorised   financial   advisers,   it   is   estimated   that   In   approximately   80%   are   aligned   to   a   financial   product   provider   (Bank,   Insurance   Company  or  Fund  Manager).       This   means   that   80%   of   financial   advisers   are   mandated   to   only   provide   you   financial   product   solutions   from   the   bank,   insurance   company   or   fund   manager   they  are  aligned  to.     The  remaining  20%  is   what  the  industry  refers  to  as  independent  financial  advisers.   These   financial   advisers   are   not   aligned   to   any   financial   product   provider   and   are   therefore   able   to   access   a   wider   range   of   financial   product   solutions   to   help   you   reach  your  goals  and  objectives.       Your  choice  of   financial  adviser  may  affect  your   outcome,  but  at  the  end  of  the   day   you   should   choose   a   financial   adviser   that   you   can   trust   and   are   comfortable   to   work  with.     Comparable  Analogy:     Shopping  For  a  New  Phone     If  you  were  to  walk  into  Apple  store  you   will  be  sold  an  Apple  product  even  if  it  does   not  completely  fulfil  your  needs.       But  what  if  your  needs  were  fulfilled  by  a   Samsung  product?       You  should  have  instead  walked  into  a  JB   Hifi  store  (Independent)  where  you  have   the  choice  of  both  Apple  and  Samsung   products.     www.proadviser.com.au      
  7. 7.     Page    7               NEW  REGULATIONS  FOR  ADVICE     ?   In  July  2013,  the  Australian  government  introduced  the  Future  of  Financial  Advice   (FOFA)  reforms  to  help  improve  the  quality  of  financial  advice,  particularly  product   recommendations   and   making   financial   advice   more   affordable,   transparent   and   accessible  to  Australians.     These   reforms   have   really   revamped   the   industry   and   made   many   advisory   firms   reassess   and   change   their   business   models.   In   summary,   the   benefits   of   the   reforms  are:     • adviser   interests   will   become   aligned   with   client   interests,   leading   to   more   client-­‐focused  advice  and  greater  adviser  engagement  with  clients;   • product   recommendations   will   not   be   influenced   by   commissions   given   to   advisers  by  product  issuers;   • clients   will   be   less   likely   to   suffer   detriment   as   a   result   of   excessive   fee   arrangements  or  sub-­‐optimal  investment  strategies;   • a  more  competitive  advice  market;   • greater  availability  of  advice;   • advisers   will   be   discouraged   from   recommending   imprudent   investment   strategies,  for  example,  strategies  that  rely  heavily  on  borrowed  funds;   • a   reduction   in   product   fees   which   will   result   in   significant   savings   for   consumers;  and   • less  rogue  advisers  in  the  industry.     For  more  information  on  how  FOFA  please  visit:     http://futureofadvice.treasury.gov.au/content/Content.aspx?doc=faq.htm     www.proadviser.com.au      
  8. 8.     Page    8               YOUR  OPPORTUNITY     ?  a  result  of  FOFA,  the  industry  has  already  seen  a  structural  shift  and  the  financial   As   advice   market   is   becoming   more   and   more   competitive   for   all   advisory   firms.   Naturally   there   will   be   a   decline   in   firms   that   overcharge   their   clients,   do   not   put   clients  interest  first  and  hire  substandard  financial  advisers.     You   now   have   the   opportunity   to   align   yourself   with   a   financial   adviser   that   puts   your   interest   first,   provides   quality   financial   advice   and   has   the   experience   and   knowledge  to  guide  you  through  all  your  life  stages.         www.proadviser.com.au      
  9. 9.     Page    9               COST  OF  A  FINANCIAL  ADVISER     ?   on  data  from  the  Financial  Planning  Association,  the  cost  of  a  comprehensive   Based   financial  plan  from  a  financial  adviser  is  on  average  $3,600.  This  is  a  ball  park  figure   and  would  usually  include  the  time  taken  for  a  financial  adviser  to  meet  with  you,   asses  your  needs  and  risk  tolerance,  devise  a  plan  that  helps  you  meet  your  needs   and  implement  this  plan  on  your  behalf.     Amazingly,   44%   of   Australians   believe   that   a   financial   plan   should   cost   less   than   $500!  One  should  not  that  no  quality  Financial  adviser  in  the  country  will  be  able  to   provide  a  comprehensive  financial  plan  for  this  price.     A  great  article  on  the  cost  of  financial  advice  is  linked  below     “Financial  advice  for  less  than  500?  You’re  dreaming”   http://www.superguide.com.au/how-­‐super-­‐works/financial-­‐advice-­‐for-­‐less-­‐than-­‐ 500-­‐youre-­‐dreaming     www.proadviser.com.au      
  10. 10.             Page    10     8  QUESTIONS  FOR  YOUR  ADVISER   ?   The  financial  adviser  you  choose  should  be  there  to  guide  you  through  all  your  life       stages.   To   help   you   find   one   that   is   qualified,   experienced,   knowledgeable   and   trustworthy,  you  can  ask  them  the  following  questions.     1)  How  many  years  have  you  been  an  Authorised   Representative?   It  is  common  for  a  financial  adviser  to  have  started  their  career  in  a  client  service,   paraplanning   or   assistant   role.   These   roles   help   individuals   develop   into   financial   advisers   by   giving   them   the   exposure   to   the   finance   industry,   preparing   them   to   work   with   clients   and   providing   them   with   basic   work   skills.   But   this   experience   does  not  necessarily  mean  that  they  will  become  good  financial  advisers.     By   asking   a   financial   adviser   the   above   question,   you   are   actually   identifying   the   number  of  years  a  financial  adviser  has  formulated  strategies  to  help  clients  reach   their  goals  and  objectives.  This  is  the  experience  that  really  matters.      Generally,   you   should   seek   a   financial   adviser   that   has   been   an   Authorised   Representative  for  at  least  2  years.     www.proadviser.com.au      
  11. 11.     Page    11       2)  What  are  your  tertiary  qualifications?   ASIC  only  requires  an  individual  to  be  RG146  compliant  in  order  to  provide  financial   advice.   RG146   is   a   guide   set   out   by   ASIC   that   sets   out   the   minimum   training   standard  that  apply  to  advisers  and  how  advisers  can  meet  these  training  standards.     Interestingly,  attaining  RG146  is  incredibly  easy.  It  is  just  a  one-­‐year  course,  from  a   mediocre  educational  institution  that  requires  no  prerequisite  qualifications.  Have   a  look  for  yourself:     http://www.rg146courses.com.au/content/courses/course_map.php     Considering   that   your   financial   adviser   is   looking   after   your   life   savings,   attaining   RG146  is  not  enough!  The  minimum  qualification  they  must  have  in  order  to  have  a   sound  understanding  of  the  financial  industry  alone  is  a  tertiary  level  qualification.     Good   financial   advisers   should   have   Bachelors   Degree   in   Commerce,   Accounting,   Finance  or  Economics  as  a  minimum.     3)  Who  is  your  AFSL  licence  holder?   As   discussed   earlier,   professionals   that   are   authorised   representatives   of   an   advisory   business   that   holds   an   Australian   Financial   Services   Licence   (AFSL)   are   legally  allowed  to  provide  you  with  Financial  Advice.       You   should   ask   your   financial   adviser   this   question   and   do   some   research   on   the   advisory   business   that   holds   the   AFSL.   You   can   check   licence   details   by   visiting   ASIC’s  online  register:     https://connectonline.asic.gov.au/RegistrySearch/faces/landing/ProfessionalRegist ers.jspx?_adf.ctrl-­‐state=83bj8wdjc_4         www.proadviser.com.au      
  12. 12.     Page    12       4)  What  products  and/or  services  are  you  authorised  to  advise   on?   If  you  ask  your  financial  adviser  this  question,  you  will  get  a  clear  understanding  of   the  issues  that  they  can  assist  with.  If  you  need  assistance  in  another  area  of  advice,   which   is   outside   of   the   authority   of   the   financial   adviser,   you   should   seek   advice   from  someone  else.     5)  Have  you  ever  had  disciplinary  action  as  an  Authorised   Representative  and/or  been  involved  with  a  FICS/FOS   complaint?   A   disciplinary   action   as   an   Authorised   Representative   refers   to   an   action   taken   against  the  adviser  by  the  AFSL  licence  holder  in  response  to  any  wrongdoing.     A   FIC/FOS   complaint   refers   to   complaint   lodged   with   Financial   Ombudsman   Service   by  a  former  or  current  client  in  relation  to  a  dispute  between  the  financial  adviser   and  the  client.     If  the  Financial  adviser  has  been  involved  in  any  disciplinary  action  or  complaint,  it   is  likely  that  they  will  try  and  avoid  revealing  this  information  to  you  when  you  first   meet  them.  You  should  first  ask  the  financial  adviser  this  question  and  to  confirm   their   answer,   you   can   contact   the   AFSL   licence   holder   or   search   Financial   Ombudsman  Service  dispute  register,  which  is  linked  below.     http://www.fos.org.au/resolving-­‐disputes/decisions/         www.proadviser.com.au      
  13. 13.     Page    13       6)  Is  a  part  of  your  remuneration  tied  to  your  performance  of   selling  financial  products?   Regardless  of  whether  your  financial  adviser  is  independent,  you  need  to  make  sure   that   their   remuneration   is   not   directly   tied   to   selling   financial   products.   Their   primary  form  of  income  should  not  be  from  a  bonus  or  commission  as  a  result  of   selling   you   a   managed   fund,   insurance   policy   or   any   other   financial   product.   Financial   advisers   should   only   be   providing   you   with   financial   product   recommendations  if  they  suit  your  needs  and  helps  you  reach  your  goals.     This   information   is   not   publicly   available   and   will   need   to   be   answered   by   the   financial  adviser  or  AFSL  licence  holder.  Financial  advisers  will  be  more  than  happy   to  reveal  this  information,  unless  they  have  something  to  hide.   7)  Do  you  meet  the  Corporations  Law  definition  of  independent   as  a  financial  adviser?   If   you   are   looking   for   a   financial   adviser   that   is   completely   independent   and   not   influenced   by   any   product   providers   when   providing   advice,   you   should   ask   the   financial  adviser  if  they  satisfy  the  term  for  independence  in  the  financial  services   industry  as  per  the  Corporations  Law.     The  two  key  requirements  for  claiming  independence  are  that:   • The  adviser  cannot  receive  any  commissions,  volume  bonuses  or  other  forms   of  gift  or  remuneration  from  the  issuer  of  a  financial  product   • The  adviser  cannot  be  employed  by  the  issuer  of  financial  products     www.proadviser.com.au      
  14. 14.     Page    14       8)  Do  you  as  a  financial  adviser  believe  in  your  own  strategies   and  how  financial  sound  is  your  own  personal  situation?   Would  you  trust  a  heart  surgeon  who  is  a  chronic  smoker,  or  a  mechanic  with  an   unsafe  car?  Probably  not,  and  the  same  principle  applies  for   financial  advisers.    It  is   very   easy   for   a   financial   adviser   to   be   instructed   by   their   superiors   to   use   a   particular   model   or   approach   to   providing   financial   advice.   But   ultimately,   as   a   client  you  need  your  financial  adviser  to  truly  believe  in  what  they  are  advising  you.       If   your   financial   adviser   is   asking   you   to   use   a   particular   financial   product   or   strategy,   you   should   ask   them   if   they   are   using   the   same   or   similar   products   and   strategies   in   their   own   financial   plan.   If   they   do   not,   it   shows   that   they   do   not   believe  in  the  strategy  themselves  even  though  they  are  recommending  it  to  you.     Additionally,  as  a  specialist  of  personal  finance,  your  financial  adviser  should  have   his   or   her   own   financial   situation   under   control.     There   is   no   reason   to   hesitate   and   ask   them   this   question.   Most   Financial   advisers   love   to   discuss   their   personal   financial   successes,   as   it   is   a   way   for   them   to   prove   to   you   that   they   are   competent   for  the  role  and  are  able  to  formulate  and  implement  successful  financial  strategies.   www.proadviser.com.au