In addition to establishing that your potential financial advisor is in fact licensed and registered to provide financial advice, there are other important factors to consider.
Consider what you hope to gain from financial advice
People often turn to financial advice when they are in a changing season of life, such as starting a family, planning for retirement or after receiving an inheritance. You can also turn to a financial advisor when you’re looking to get out of debt or want to be more aware of your long-term investment capabilities.
When choosing an advisor, it’s important to consider your stage in life and what you want to get out of the advice. Consider your short-term and long-term goals along with how long you expect to work with a financial advisor.
See their financial services guide
“When looking for an adviser, make sure you read your adviser’s Financial Services Guide to find out about their fees and services and how they deal with complaints,” an ASIC spokesperson told Forbes Advisor.
These are usually displayed on a financial adviser’s website, or you can request a copy before discussing any deal with them.
A financial services guide will show the services a financial adviser offers; how they charge their fees; who owns the business; any links to product providers; and your AFS license number.
Make sure you know the fees
Financial advisors charge different fees depending on their services and the type of advice you seek. It’s important to compare the fees charged by different advisers to make sure you’re getting a good deal, an ASIC spokesman advises.
As Moneysmart explains, these are typically broken down into flat fees, percentage-based fees and commissions.
Fixed fees typically include: a one-time statement of advice (SOA) fee; a one-time fee for implementing financial advice; an ongoing fee (usually charged monthly) for your 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 that depend on additional services.
Some financial advisers also charge an early termination fee, if you have entered into an ongoing agreement but decide to terminate it before the agreed end date.
Percentage-based fees should also be disclosed by your financial advisor. They 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 your assets, the higher the fee). This fee is paid regardless of the performance of your investments.
If your assets perform well, you will also pay an investment management fee. This is an additional percentage based on the performance of your investments and is usually set by a pre-discussed benchmark when your agreement begins.
Be prepared with questions
When you talk to a potential financial advisor, they’ll need information about your personal situation to understand whether they’re in the best position to help you. You should also have questions you can ask any potential advisor to make sure you feel they are a good fit for your needs as well.
When you meet with an advisor, ask them:
- Who is your main customer base and what are your specialties?
- How often will we meet or contact each other, and what information will I receive at each meeting?
- How will you monitor and manage my investments, and how will I be consulted on decisions?
- Do you receive commissions or incentives from certain financial products? How will you choose which products and services to recommend to me?
- Who will manage my account when you’re gone?
- If I choose to end our agreement, what will the process entail? Are there any penalties or notice periods I should be aware of?
Protect your money
Contacting a financial advisor is still a risk, even if they are fully qualified, as you are giving someone else control over your finances.
To protect your money, ASIC advises you to be careful about the access your adviser has to your investment accounts and to let them know if you are unhappy or concerned about their services.
Other precautions recommended by ASIC are:
- Do not empower your advisor;
- Never sign a blank document;
- Put a time limit on any authority you give to buy and sell investments on your behalf;
- Insist that all correspondence about 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 wire transfers payable to the product provider (not to your advisor); i
- Check your transactions regularly if you have an investment account or use an investment platform