4 common myths about financial advisers debunked
Protecting
27 April, 2018 - 11:38 AM GMT

4 common myths about financial advisers debunked

We dispel some of the biggest myths about seeing a financial adviser and discover why the right kind of professional advice is invaluable to your financial future.

Many people toy with the idea of seeing a financial adviser but have concerns that stop them from taking the plunge. There are many factors to consider when investing, such as your overall investment goals, the amount of time you have to invest, your risk profile and the status of markets and the overall economy.

But when people do see an adviser they quite often realise there is really no substitute for the knowledge and expertise provided by a qualified financial adviser.

Here are four common myths dispelled.

Myth 1: My financial adviser will judge me or misuse my information

Disclosure anxiety is one of the major concerns that many people have when considering seeing a financial adviser. This is when people feel anxious about sharing their intimate financial details with someone they don’t know. They may also want to avoid shame or judgement and in some instances worry about the safety and privacy of their financial information.

Michael Nowak, senior adviser and managing director of Novak Financial Services in Brisbane, says qualified financial advisers have better people skills and can help alleviate your fears by talking you through the process in great detail.

“Financial advisers are bound to the privacy act, so you can rest assured that your privacy is of paramount importance to us.  Within financial advice, much recent focus has been on the importance of having excellent interpersonal skills and know how to more effectively communicate with clients and help them understand the advice process on a personal level. Advisers are not there to make judgements, but to help you. Everyone who sees an adviser has different financial circumstances and as advisers we aim to personalise the plan to each individual,” he says.

Myth 2: The cost of advice is too high

Fear that financial advisers will charge undisclosed fees and commissions ranks high in some people’s minds. There is a common belief that advisers sometimes direct clients to invest in products or companies for their own gain rather than for their client’s benefit.

But you can rest assured your interests are paramount to financial advisers thanks to the recent Future of Financial Advice Reforms or (FoFA) that have tipped the scales back in favour of you the client. There is now legislation in place to help protect consumer’s interests. From July 1, 2013 the government banned commissions on new investments and super products and made financial advisers subject to a statutory fiduciary duty that requires them to place your interests above their own.

Advisers must clearly outline all initial and ongoing charges in a Statement of Advice (SOA) which is provided to clients before the implementation of the advice.  Advisers are also required to send you an annual breakdown statement for all fees and charges, known as a Fee Disclosure Statement (FDS). In addition, financial advisers must contact you every two years to give you the opportunity to Opt In for ongoing advice. This protects you when you no longer need ongoing advice or are unaware you are receiving (and paying) for it.

Myth 3:  There’s no value seeing a financial adviser

People quite often ask themselves “Is it really financially worthwhile seeing an adviser or am I better off managing my own money?” While absolute certainty can’t be given, gains can be substantial over the lifetime of an investment plan. So how do advisers provide this extra value for you? A key benefit is from behavioural coaching.

Behavioural coaching refers to when a financial adviser helps prevent investors from making harmful behavioural decisions, like stopping spooked investors from selling stocks at a loss in volatile markets. “A key role of an adviser is to be the “steady head” and keep investors focused on their long-term goals, especially in times when emotions and mixed messages may be an influence.  Experience shows that sticking to your set strategy will most likely lead to the attainment of investor’s long-term goals,” says Nowak.

With constantly changing rules and legislation relating to financial services, it is difficult for the average consumer to be certain that they are up to date.  Google is always your friend until it gets it wrong.  This also applies to the complex products used to help people achieve their financial goals.

Myth 4: I don’t need to see a financial adviser because I have an accountant

Accountants can offer invaluable services such as examining financial records, auditing and recommending advice for small business. While financial advisers take a more holistic approach of your whole financial situation by factoring in your financial goals and by considering the key financial factors that dominate your life, such as your house and mortgage, your relationships, your entertainment and recreational needs. They can then tailor a financial plan that specifically targets your financial goals. Offering ongoing support and freeing up time you would normally need to read up about complex investment products and the important legislative requirements you need to follow to invest for your future is another bonus.

What do I look for in a financial adviser?

  • Check to see they are appropriately qualified. Make sure they hold a Financial Services (AFS) Licence and check ASIC’s Financial Adviser Register to see they have undertaken appropriate training in the areas they will be giving you advice. Also check the ASIC Financial Adviser Register to see what industry association memberships they hold such as the Association of Financial Advisers (AFA). This is usually a sign that they will abide by a Code of Conduct that governs their professional practice and behaviour.
  • Ensure that the adviser has undertaken ongoing professional development to stay ahead of trends, new financial products and changing legislation. As financial advice moves into the professional era, more advisers are gaining higher qualifications to ensure they provide the highest quality advice to consumers.  These include university degrees, master’s degrees, and designations such as the AFA’s Fellow Chartered Financial Practitioner (FChFP).
  • Your adviser is required to clearly outline their fees and how much their services will cost. Make sure you ask your adviser the cost of preparing a statement of advice (SOA), fees for carrying out that advice and fees for ongoing advice.
  • Your adviser should be personable. They should listen carefully to your financial goals and aspirations. You should feel at ease speaking to them. This is crucial to them drawing up a financial plan that will specifically target the financial goals you’re hoping to achieve. You have the right to choose your adviser. You don’t have to go with the first adviser you meet.
  • Read the adviser’s Financial Services Guide (FSG) carefully (available from their website or by asking them for a copy). Take note of any companies or organisations they are affiliated with and ask them if they get paid for selling any specific products.
  • Your adviser should provide you with regular information about your investments, how they will be monitored and tell you when to expect to receive communications.