CHOOSING AN ADVISER
A good financial adviser can help you plan and achieve your financial goals. So how do you find a good adviser? Look for someone who is qualified and licensed, who has experience dealing with clients who have similar needs to yours, and someone you feel comfortable working with. We recommend you look for a fee-for-service adviser, whose remuneration is free from potential conflicts. Shopping around for an adviser may be time-consuming or feel awkward, but it’s worth the effort to find an adviser who has the right skills and experience to suit your needs and can be trusted to act in your best interests.
Where to start your adviser search
When looking for a suitable adviser, start by identifying advisers in your area that potentially suit your needs. You’ll need to be clear about the services you want so you know what you are looking for. The ADF Financial Advice Referral Program may help you find a genuine fee-for-service adviser, who is free from remuneration-based conflicts of interest. You could also ask family, friends or colleagues for recommendations, or use the search functions available on industry association websites.
Check the financial advisers register
When you have a short list of advisers, look them up on ASIC’s financial advisers register before you approach them about getting advice. The register will detail:
- their history, qualifications and current employment status
- the types of products the adviser can provide advice on
- membership of a relevant professional body or industry association
- whether they have been the subject of disciplinary action by ASIC
- the name and number of the Australian financial services (AFS) licence holder who employs or authorises the financial adviser to provide advice and details about who owns or controls the licence holder
Do not deal with an adviser who is not operating under a licence. They are breaking the law and you will have little protection if things go wrong.
Get a financial services guide (FSG)
A financial services guide (FSG) will tell you about the services an adviser offers, how they charge and whether they receive any additional payments or benefits. It will also tell you who owns the company that employs the adviser and if they have links to a product provider, such as a bank, fund manager or life insurance company, which may affect the products and services they offer.
Read the FSG of the advisers you are considering to determine whether their services fit your needs. You can find the guide on their website or ask them for a copy.
One stop shops
Some advisers offer a ‘one-stop-shop’, where you have access to a number of related professional services in the one place. This may seem convenient; but the adviser may receive a monetary benefit for recommending other professionals or businesses.
For example, an adviser may recommend you set up a self-managed super fund (SMSF) with a strategy to invest in property. They then refer you to a property developer to help you find an investment property, an accountant to help you set up and manage the SMSF, and a lawyer to take care of the legal requirements.
If they have a pre-existing business relationship with the professionals they recommend, such as a personal interest in the other businesses, or they receive a referral fee or other benefits, this creates potential conflicts and they might not be working in your best interests.
Ask the adviser whether they benefit from a pre-existing relationship they have with the other professionals or businesses they recommend.
What does financial advice cost?
Financial advice is not cheap. Advisers set their own fees which vary depending on your advice needs, so it’s important to understand how your adviser charges before you agree to go ahead.
Look for an adviser that charges a set dollar fee (also known as ‘fee-for-service’). If an adviser charges fees based on a percentage of your investments, they are potentially conflicted. This means there is a temptation to act in their own best interest, rather than yours.
For example, you might be looking to buy an investment property and want advice on how the purchase will fit into your long-term financial goals. An adviser who charges fees based on a percentage of assets they manage, might recommend a particular investment product instead, as they can’t charge fees on an investment property but can charge fees on an investment product.
Some of the fees you may be asked to pay and your payment options are outlined below.
The first meeting with a financial adviser
The first meeting with an adviser is often free but some advisers do charge for your initial appointment. Expect to pay $0 – $500 for this meeting, during which you and the adviser will discuss your advice needs and the adviser can explain how they can help you.
The adviser will also explain how they charge and give you an estimate the cost of the advice so you can decide whether you want to proceed. Costs should be outlined in dollars, not just as a percentage of the amount you have to invest.
The adviser may be willing to negotiate fees, especially if your needs are fairly simple. Single issue advice, such as choosing a particular investment, an insurance policy or consolidating your super, should cost less than more holistic comprehensive advice.
Statement of Advice (SOA) fee
If you agree to go ahead with the adviser, they will prepare an SOA that will formally document their advice. It will include their understanding of your current personal circumstances and financial goals, recommended strategies to achieve your goals, and detail of any financial products they recommend.
The cost for preparing the SOA will be billed to you or may be deducted, with your permission, from the balance of your investment. Typically this type of advice costs at least $3,000.
If you decide not to proceed with the adviser’s recommendations, you will generally still be expected to pay for the preparation of the SOA.
Fee for implementing financial advice
If you accept the adviser’s recommendations, there may be a fee to cover the administration work involved with implementing the advice. The amount charged should reflect the complexity of the recommendations and the amount of work required. You may be able to negotiate this fee with your adviser.
You may be offered a choice of paying upfront or having the cost deducted from your investment. This fee is often $500 – $2,000, although some advisers may include implementation in the SOA fee.
Ongoing financial advice fees
Your adviser may offer you an ongoing or review service, it’s important to understand what this will cost and what the fee covers. Typically, an ongoing advice fee covers investment reports, phone or email access to an adviser and a regular review with your adviser. It may also cover things like newsletters and seminar invitations. You’ll need to decide whether the ongoing fee represents value for money.
Ongoing advice fees may be paid by you directly or deducted, with your permission, from your investment. Fees charged as a percentage of your assets, are a form of conflicted remuneration. If your adviser isn’t willing to charge a flat ‘fee-for-service’ you may want to look for an adviser that will.
You can end an ongoing relationship with your adviser at any time by notifying them in writing. Keep a copy for your records and give them a reasonable amount of time to action your request.
Financial product commissions
Commissions and volume-based payments are incentives, paid to an adviser, for recommending a particular financial product. This can influence the advice given by the adviser as they may be tempted to recommend a product that is in their best interest, not yours.
Commissions were banned on new investments and super products from 1 July 2013; however, an adviser can still receive ongoing commissions from financial products bought before that date. If you are invested in one of these products, commissions will continue to be deducted from your investment until you leave that product or end your relationship with that adviser.
Advisers can still receive commissions on some products, like life insurance. This could influence the insurer or amount of insurance they recommend for you. If your adviser recommends an insurance product, ask them if they will be receiving a commission and if yes, are they willing to rebate it to you.