5 Questions you should ask a financial adviser
Planning
27 April, 2018 - 11:45 AM GMT

5 Questions you should ask a financial adviser

  •  
  •  

Once you are ready to meet potential advisers, here are some questions you should ask to help you find the best person to fit your needs. ByCharles Badenach.

1 WHAT IS YOUR BACKGROUND AND WHAT FORMAL QUALIFICATIONS DO YOU HAVE?

In dealing with any professional, it is important to have an understanding of their professional background and qualifications.

All financial advisers in Australia must meet a certain minimum educational requirement and these standards are constantly being raised. The more qualified and experienced your adviser is the better. Your Adviser should show a commitment to continual education. When looking at an adviser’s qualifications you should consider both their formal education and their experience:

  • What degrees, diplomas or post-graduate qualifications do they have. There is no higher industry designation than the Fellow Chartered Financial Practitioner (FChFP).
  • What specialist accreditations do they have e.g. life risk specialist, SMSF specialist, estate-planning specialist etc.
  • What is their experience as a financial adviser?
  • Whether they are a member of any industry associations and/or professional bodies, such as the AFA?

You can check an adviser’s qualifications through the financial advisers register on the ASIC website (moneysmart.gov.au/investing/financial-advice)

2 WHAT IS THE SCOPE OF YOUR ADVICE?

In a similar way to medical professionals, not all financial advisers provide the same services, some offer holistic advice, others offer advice in a limited range of areas such as insurance or superannuation. It is important to ask a potential adviser if they are capable of providing all of the services you require. An adviser that suits one individual may not suit another.

Some advisers may not have the experience or qualifications to advise on a particular area such as self-managed superannuation funds, direct shares or margin loans. Whatever your long-term needs and objectives are, make sure the adviser you choose can meet them all. As you will hopefully have a long-term relationship, you should also ask your adviser what actions they will take to implement, update and maintain any plan you devise together. For example, how often will you meet with your adviser? Do you have access to a team of experts or just the adviser?

3 HOW DO YOU CHARGE FOR YOUR SERVICES?

A professional relationship will not work over the long term unless you have an understanding of what advice you are receiving and what this costs you. It is important that you get an understanding on what fees you pay, how these are calculated and how they are paid by you. A financial services guide, which you will receive at the initial meeting, is a useful starting point, and any costs you are charged will be set out in the statement of advice. Generally, you will pay costs for the initial advice which should be set out either in a terms-of-engagement letter or discussed and agreed before proceeding. If you require ongoing financial advice, you will be charged an annual fee.

Traditionally, this has been a percentage of the funds under management, however most advisers are moving towards charging a fixed fee for an agreed set of deliverables. There are a limited range of circumstances where an adviser may be paid from a product such as personal insurance and in these situations, you need to understand how this works. All fees and commissions will be transparent and disclosed to you in the statement of advice.

4 CAN YOU PROVIDE AN EXAMPLE OF YOUR CURRENT WORK AND CLIENTS?

Before you work with an adviser, you should get an understanding of how they work with their clients including examples of the work they have provided for clients. This would normally include how they structure their statements of advice and how advice is provided on an ongoing basis. For example, do they use an agenda for a client meeting, how do they update their clients when changes are required, and what technology do they use to assist with the provision of advice (e.g. videos).

In addition to reviewing how the adviser engages with their clients, I would also recommend asking for client testimonials and details of current clients who have similar needs to you and who you can contact. We have a client testimonial playlist on our YouTube channel which we email to clients as and when required with the client contact details. For prospective clients this is an invaluable resource.

5 ARE YOU AN ALIGNED OR UNALIGNED FINANCIAL ADVISER?

It is important that every client understands whether the adviser works in an “aligned” or “non-aligned” financial advice business. This allows the client to gain an understanding on whether there are any incentives to recommend one product or structure over another. Aligned advisers include those employed by a large organisation who recommend products associated with that organisation. This may also include advisers whose businesses use that organisation for dealer services. Non-aligned advisers, on the other hand, generally have an open architect” model where they do not have an incentive to recommend one product over another. One option is not necessarily better than the other, but clients need to understand if any conflicts of interest potentially exist.

A FINAL WORD

A financial adviser can add significant value to your financial health over the long term and finding the right one can be difficult, but when you find one, it will be one of the most sensible moves you can make. However, be careful when making the choice as similar to any profession there is a small number of bad apples, which tarnishes the reputation of the majority. Good luck in your search.

Author: Charles Badenach, CFP is the Principal and Private Client Adviser at Main Street Financial Solutions.