In addition to establishing that your potential financial adviser is in fact licensed and registered to give financial advice, there are other important factors to consider.
Consider what you hope to gain from financial advice
Often people turn to financial advice during a changing season in life, such as starting a family, planning for retirement, or after receiving an inheritance. You can also turn to a financial adviser when looking to get out of debt or want to become more aware of your long-term investment capabilities.
When choosing an advisor, it’s important to consider your life stage and what you want to get out of advice. Consider your short and long term goals and how long you expect to want to work with a financial advisor.
Check out their guide to financial services
“When looking for an adviser, be sure to read your adviser’s guide to financial services to learn more about their fees and services, and how they handle complaints,” a spokesperson said. ‘ASIC to Forbes Advisor.
These are usually listed on a financial adviser’s website, or you can request a copy before discussing any deal with them.
A guide to financial services will show the services offered by a financial advisor; how they charge their fees; who owns the business; any links to product providers; and their AFS license number.
Make sure you know the fees
Financial advisors charge varying fees depending on their services and the type of advice you seek. It’s important that you compare the fees charged by different advisors to make sure you’re getting a good deal, advises an ASIC spokesperson.
As Moneysmart explains, these are usually broken down into fixed fees, percentage-based fees, and commissions.
Fixed fees typically include: a one-time SOA fee; a single fee for the implementation of financial advice; ongoing fees (usually billed on a monthly basis) for their advice and services; a one-time fee for a financial plan review; a fixed hourly rate for answering questions that are not part of ongoing advice; and other fixed fees depending on additional services.
Some financial advisers also charge an early termination fee, if you have an ongoing agreement but decide to end that agreement before the agreed end date.
Percentage-based fees should also be disclosed by your financial advisor. These typically include an asset-based percentage fee, which is a fee based on the total value of your current portfolio (the higher the value of the assets you have, the higher the fee will be). These fees are paid regardless of the performance of your investments.
If your assets are doing well, you will also have to pay investment management fees. This is an additional percentage based on the performance of your investments, and is usually set by a benchmark previously discussed at the start of your agreement.
Be ready with questions
When talking to a potential financial adviser, they will need information about your personal situation to understand if they are in the best position to help you. You should also have questions you can ask any potential advisors to make sure they meet your needs as well.
When you meet with an advisor, ask them:
- Who is your main clientele and what are your specialties?
- How often will we meet or be in contact, and what information will I receive at each meeting?
- How will you control and manage my investments, and how will I be consulted on decisions?
- Do you receive commissions or incentives on certain financial products? How will you choose the products and services to recommend to me?
- Who will manage my account while you are away?
- If I choose to end our agreement, what will be the procedure? Are there any penalties or notice periods I should be aware of?
Protect your money
Engaging with a financial adviser is always a risk, even if they are fully qualified, because you are giving someone else some control over your finances.
To protect your money, ASIC recommends that you remain cautious about your advisor’s access to your investment accounts and let your advisor know if you are unhappy or concerned about their services.
Other precautions recommended by ASIC are:
- Do not give your advisor power of attorney;
- Never sign a blank document;
- Limit in time any authorization you give to buy and sell investments on your behalf;
- Insist that all correspondence regarding your investments be sent to you, not just your advisor;
- Keep all your electronic documents and files in one place;
- For investments, write checks or money transfers payable to the product provider (not your advisor); and
- Check transactions regularly if you have an investment account or use an investment platform