If you're planning on buying a house, setting some long-term financial goals or wondering what to do with a lump sum of cash, you might be in need of some professional financial advice.
Financial planners and advisers can make managing your money a whole lot easier, but it's important to know who you're dealing with, what they can do for you, and what's in it for them.
On this page:
- What's the difference between a financial planner and a financial adviser?
- Do I need a financial adviser?
- How do I find a good financial adviser?
- How to prepare for a financial planning session
- What happens at the first meeting
- Negotiating your price
- Assessing and reviewing financial plans
- What to do if you have a problem with your financial adviser
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What's the difference between a financial planner and a financial adviser?
Basically, there is none. A financial planner and a financial adviser are both professionals who (hopefully) know more about how to invest, manage and save your money than you do. In most cases they know their stuff, but in plenty of other cases the planner or adviser may have little formal training and be learning on the job under a more experienced professional. Or, they may have no expertise whatsoever, but talk a good game and look pretty impressive in a coat and tie in a rented office.
The good news is that the know-how for financial advisers is on the upswing. In December 2015, legislation was introduced to raise educational and professional standards for financial advisers – at long last.
Do I need a financial adviser?
If you're just trying to save money or sort out your superannuation account, you probably don't need to hire a financial adviser. You can talk to your super fund about your investment allocation and what it means, and you can devise your own simple savings plan, either through a high-interest savings account, term deposit or other straightforward savings strategy.
But if your financial life has gotten complicated, a good adviser can be a major asset when it comes to making the right long-term financial decisions.
It could be a good idea to consider an adviser when:
- planning for your family's long-term financial health, in particular buying a home
- considering your options if you've been retrenched
- planning for retirement.
The first thing to decide is whether you really need a financial adviser at all.
The different types of financial advice available can be roughly broken down into three categories.
1. A one-off issue
You may have come into a bit of money or want to figure out the best way to consolidate your super funds. A one-off, fee-for-service visit to a financial adviser should cover this.
2. A long-term plan
If you're at that point in your life where you want to establish a specific strategy for a healthy financial future – including investing in the share market or bonds, tax advice or buying a house – an experienced and knowledgeable financial planner can provide some very valuable tips.
Unless your financial life is complicated, a single visit that you've prepared well for should set you on the right course. If things become unclear or uncertain in the future, you can make another appointment, but you won't need to start the plan all over again.
3. Ongoing advice
This is only necessary if you have substantial assets and a sizeable investment portfolio. If your financial life has lots of moving parts, you'll want ongoing advice about the best strategy to meet your goals.
We don't think consumers should be charged according to a percentage of their assets – after all, one percent of $200,000 is a lot more than one percent of $100,000, and the adviser arguably doesn't have to work any harder to give advice on the higher amount.
How do I find a good financial adviser?
FoFA-compliant.
The Future of Financial Advice (FoFA) reforms have largely put an end to conflicted remuneration, meaning financial advisers are no longer allowed to recommend products or strategies based on the commissions they stand to make. In short, they have to put your interests ahead of their own.
Licensed
Your planner should be licensed to provide advice or be the authorised representative of a financial services licence holder. All licence holders have to register with ASIC.
Expertise
One size doesn't fit all in financial planning, so shop around to find a planner that's right for you. In particular, ask if the planner provides comprehensive advice or if they're an investment and placement service only. In short, make sure they really have expertise in the area in which they're offering advice.
Many people consult a financial adviser when they want to invest in shares or buy a house.
How to prepare for a financial planning session
If you need to create a full-scale financial plan, doing your homework in advance will make all the difference in how the session turns out. It'll also help you get the best out of your adviser:
- Prepare a household budget detailing all sources of income and summarising your living expenses.
- Make a list of all assets and their value, and all liabilities (credit cards and other loans).
- Make a list of your financial needs and goals for the short, medium and long term.
- Learn as much as you can about different investments and markets.
- Think about how much risk you're prepared to take when investing.
- Make a list of all existing investments, including information about their current value, past performance and fees.
- Get up to speed on information your planner may not have access to, such as whether your employer is able to channel more of your salary directly into super ('salary sacrifice') or options within your existing super fund.
What happens at the first meeting
The planner should use the first meeting to analyse your needs, goals and risk profile. We suggest you use it to analyse the planner's professionalism and ability to meet your requirements.
- Request a copy of their Financial Services Guide (FSG) to be sent via email, fax or post before your first meeting – and be sure to read it.
- Discuss the planner's background and qualifications.
- Give the planner as much information as possible about your personal situation, needs, timeframe and attitude to risk.
- Discuss whether there are any limits to the advice they can provide.
- Find out exactly who the planner represents and ask if they have any preference for a particular type of investment or fund manager –if so, ask them to justify it.
- Find out about their professional indemnity insurance, what it covers and to what amounts.
- Ask if they have their own 'wrap' account or master trust and if these are likely to be recommended over other investments and, if so, why.
- Gauge the planner's attitude to strategies like gearing (borrowing money to invest). Does it match yours?
Pricing structures offered by financial planners should be flexible and give you room to negotiate.
Negotiating your price
Find out exactly what you'll pay for the advice given. Don't assume the fees outlined in the FSG or described by the planner are set in stone. Planners don't usually tell their clients that pricing structures are flexible, but you can and should negotiate.
Assessing and reviewing financial plans
A comprehensive financial plan should be easy to read and understand. It should clearly explain how the recommended action will meet your goals, and why this option is better than others.
The comprehensive plan your financial adviser gives you should contain the following:
- Page numbers, table of contents and executive summary.
- Accurate and thorough representation of your current financial situation, future needs and goals.
- Accurate and thorough representation of your risk profile and investment time frame.
- Assessment of your current investments and justification for any recommendation to sell or keep them.
- Information about your current tax position and an explanation of how the advice will change that position.
- Assessment of your retirement needs.
- Assessment of your insurance needs.
- Assessment of your estate planning needs.
- Easy to understand information about what the planner will earn from your investments.
- Independent and up-to-date research on any products recommended.
- Explanation of how any strategies or investments recommended match your goals, needs and risk profile.
- A spread of different investment types from a range of providers.
- Explanation of how recommended investments compare with similar products in terms of fees and performance.
If a plan fails to provide any of the above, ask the planner to fix it until you're satisfied, or reject it.
Ongoing reviews
Most planners offer ongoing reviews (usually annually) and portfolio management. No plan should be 'set and forget', but a simple review for an agreed modest fee is usually adequate unless your circumstances have changed.
What to do if you have a problem with your financial adviser
If you're concerned about the advice you've received or you have reason to think a financial adviser may not be acting in your best interests, you should start by discussing your concerns with the adviser, and then follow the complaints process as outlined on the government's MoneySmart web page, Problems with a financial adviser.
Stock images: Getty, unless otherwise stated.
