How to choose the right financial adviser

Photo of Rodney Lester, Adviser Ratings By Rodney Lester, Adviser Ratings

min read

Too few investors fully understand what a good adviser can offer.

Choosing to use a professional financial adviser can be one of the most rewarding decisions you can make, not just in terms of financial gain but also for the peace of mind and the boost to your emotional wellbeing.

Despite some troubling individual accounts of advice gone wrong that have come from the Financial Services Royal Commission, most advisers are highly reputable financial services specialists with a legal, as well as moral, obligation to act in the best interests of their client.

A widely cited study by KPMG found that people who engaged a financial adviser at age 30 were on average $90,000 better off by the time they retired than those who did not.

The financial value of advice should not be in question, yet the latest research indicates that only just under 14 per cent of Australians are professionally advised.

(Fig. 1) 2.4 Million Australians (13.9%) are advised (percentages represent number advised in each age cohort)
Source: Adviser Ratings 2018 Financial Advice Landscape Report

Our experience has taught us that one reason is that many unadvised people are unaware of the full suite of services a good adviser can offer and the ways they may benefit. A common misconception is that financial advisers are simply expert stock pickers who can predict market movements and invest your money accordingly. This is not the case.

A better way to describe a financial adviser is a personal “financial coach” or your “personal Chief Financial Officer (CFO)”.

A financial adviser fulfils the same role for your finances that a personal trainer does for your fitness. A good adviser will take time to understand your financial wants and needs, define and refine what your financial goals are, and help you chart a realistic path to achieving them.

Just as with personal fitness, your financial goals and how to achieve them will be unique to you and your life stage.

You may be just looking for advice on a specific aspect of your finances, such as making sure your insurances are appropriate. Costs for one-off advice may vary widely, depending on its type. The value of advice is realised in full when you are looking for a comprehensive financial plan, and in this case the key is to find an adviser who is the right fit for you.

Generalists and specialists

Although many advisers are generalists, others are specialists catering specifically to, for example, high-net-worth individuals, and advising in particular areas such as superannuation or investments.

There are a few basic things to do when searching for an adviser, including checking their experience and qualifications — and that they are authorised to offer the advice. The Government has set up a Financial Advisers Register that lists all legally authorised advisers.

If searching for an adviser online, Adviser Ratings is the only site in Australia where you can search for and view ratings and reviews for advisers. It offers the benefit of being able to view an adviser’s experience and qualifications along with ratings and reviews by their own clients. Adviser Ratings is updated constantly.

You can search by town or postcode or name. Make a shortlist of a few advisers you think might meet your criteria.

Meeting your adviser

The first appointment is often free and is where you and your financial adviser can get to know each other. Tell them about your financial situation, what areas you would like to improve, and discuss your lifestyle and financial goals.

The adviser will tell you what they can do for you, what processes they follow and how their advice will benefit you. There are different levels of service depending on what you are after, so any costs should be explained once the adviser recognises the level of service you require.

 

At the initial meeting it is important to clarify the things that are important to you. These might include:

  1. What and how you will pay. Advisers may charge a flat fee for service, a percentage-based fee, or receive commissions for insurance products they offer. It may be important to you whether an adviser is aligned with a major bank, as this can sometimes affect the range of products they offer.
  2. Make sure the adviser can provide advice about financial products you currently have (superannuation, for example).
  3. Ask the adviser about their typical clients. This will help you judge whether they are experienced in dealing with people who have similar issues and goals to you.
  4. Ask questions.
  5. You should have good rapport with your adviser and develop a relationship based on trust. Equally, a good adviser should be willing to tell you things you may not want to hear; for example, if your goals are unreasonable or out of reach.
  6. Many have compared meeting an adviser for the first time to going on a date. You might want to go on more than one, because if you only have one date in your life, how would you know if the person is the right one for you? An adviser you stick with is likely to get to know you very well and you will likely tell them things you wouldn't say to others.

Great adviser/client relationships often last for years or even decades. Along with the direct financial benefits you receive comes the intangible benefit of having an independent, personal CFO in your corner. Someone who can help you refine and cultivate your objectives; who you can bounce ideas off; and has the specialist financial knowledge to facilitate the attainment of your goals – including the financial security of yourself and your family.

5 tips for choosing an adviser

To summarise:

  1. Take your time to find an adviser (but not too long). It should take a bit of research and a preliminary meeting or two.
  2. Make sure the adviser is authorised and check their qualifications and experience.
  3. Clarify what they can advise on and what and how they get paid.
  4. Focus on goals, not just returns. A good planner needs to assess where you are at, financially and at life stage, and where you want to be. They do not usually pick winning stocks any more than winning horses.
  5. Don't be shy. At all stages of the business relationship don't be afraid to ask questions, most of all if you don't understand something. A good planner wants you to know what's going on and why, and they should welcome a good question or two, but make sure you listen to the answers.

About the author

Rodney Lester is consumer and adviser services director at Adviser Ratings.

From ASX

ASX lists a range of financial planner groups.

The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.

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