8 questions to ask your financial adviser - from proadviser

8 Questions You Need To Ask Your Financial Adviser

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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

WHAT YOU WILL LEARN FROM THIS E-‐GUIDE


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.


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.


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/ProfessionalRegisters.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.


INDEPENDENT FINANCIAL ADVISERS ?

In Australia, of the 18,000 authorised financial advisers, it is estimated that 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.


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


YOUR OPPORTUNITY ?

As a result of FOFA, the industry has already seen a structural shift and the financial 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.


COST OF A FINANCIAL ADVISER ?

Based on data from the Financial Planning Association, the cost of a comprehensive 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


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.


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/ProfessionalRegisters.jspx?_adf.ctrl-‐state=83bj8wdjc_4


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/


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


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.