It’s important to stay actively engaged with the financial advice you receive. After all, it’s your financial plan and your financial wellbeing.  As Robert Kennedy famously said, ‘trust but verify’. Here’s some information on what to expect from your adviser.

Your first meeting with a financial adviser

Before you even get to the first meeting, your financial adviser is likely to send you what they call a ‘fact find’ to complete. This is usually a form where you list all of your financial details such as income and expenses, assets and liabilities, and your goals and financial objectives.

Think about the lifestyle you want and what your priorities are. For example, buying a home may be more important to you than a big overseas holiday, or maybe a big trip is more important than a new car. You can have more than one goal but your budget may only allow you to achieve one at a time.

Also think about the people who depend on you financially and what you want to provide for them.

Your adviser may ask you to return the information to them so they can review it and consider your situation before you meet. This will make your first meeting more productive as they will already have an idea of how they can help you and how much the advice is likely to cost.

Provide accurate information

If the information you provide is not accurate or you’re not completely honest with your adviser, you could get advice that’s wrong for your situation. Tell the adviser if you can only give limited or incomplete information.

Be clear about the scope of the advice and whether you are expecting the adviser to prepare a broad financial plan or just give advice on a particular area of your finances.

Discuss risk

Part of developing an investing plan is considering how much risk you’re prepared to accept to reach your goals. Any investment your adviser recommends should suit your investment timeframe and involve a level of risk you’re comfortable with.

Your attitude to risk can change with time and circumstances. If you’ve agreed to receive ongoing advice, you’ll need to tell your adviser if your ability or willingness to take on investment risk changes.

Visit our investing page to understand this further.

Signs the meeting has gone well

It’s easy to be swayed by an adviser’s confidence, approachability and friendliness. Many have well developed sales skills.  Don’t let this affect how you judge the first meeting.

Your first meeting with a financial adviser has generally gone well if the adviser:

  • asks you about your circumstances and helps you identify your goals
  • explains the scope of the advice they can provide and what it will cost
  • appears to understand your situation, needs and goals
  • is happy to explain complicated financial concepts until you understand them

You should reconsider your choice of adviser if they:

  • don’t ask about or listen to what you want
  • pressure you to sign documents that you haven’t read or don’t understand
  • seem to be pushing one solution (such as a specific product or self-managed super fund), regardless of your needs
  • cannot adequately explain why a particular strategy is appropriate for you

Understanding your Statement of Advice (SOA)

After your first meeting your adviser will consider your situation and put together some recommendations in a written document called a Statement of Advice (SOA). They will discuss their recommendations, often at a face-to-face meeting, and explain why they have chosen one path or product over another. You should receive a product disclosure statement (PDS) for each recommended product.

Don’t sign or agree to anything until you have read and understand these documents.

Go through the advice carefully, starting with the overall strategy and then moving on to the detail. You may prefer to do this at home, in your own time, so you don’t feel rushed.

A good way to check your understanding is to see if you can explain the recommendations to someone else. Write down any questions that come to mind as you read the SOA and PDS so you can ask your adviser to clarify these before you implement the advice.

Assessing a Statement of Advice (SOA)

When you are presented with an SOA, you’ll need to make sure you understand the recommendations and decide whether they seem suitable for you. Things to look for include:

  • Who’s covered by the advice – Is the advice just for you or should a partner or someone else be considered as well?
  • Needs and objectives – Does it address your goals and personal circumstances, or does it seem generic, like it could have been written for anyone? Good advice should consider your immediate and long-term needs
  • Financial details – It should accurately describe your assets, liabilities, income and expenses
  • Risk tolerance – Does the stated risk profile seem appropriate for you? If anything about your advisers assessment of your tolerance for risk doesn’t ring true, say something. If you’re not comfortable with the recommendations, your adviser will need to amend the plan
  • Scope – There should be an explanation of what the advice does and doesn’t cover
  • Options – Does it compare more than one course of action, outline the advantages and disadvantages of each, and state why the chosen option is more suitable?
  • Cash flow – It should show (where relevant) how the recommended strategy will affect your current income and expenses or impact your current lifestyle
  • Products – If product recommendations are included, it should be clear how they fit into the overall strategy, why they are appropriate, and what you could gain or lose by accepting the recommendations

If your adviser recommends switching to an in-house product, ask them to explain why your existing investment is no longer suitable and how the recommended product is better. You should be satisfied that they’ve made a fair comparison of each product and it’s documented in your SOA.

If you switch life insurance policies, make sure you aren’t losing existing benefits you want to keep.

Don’t feel pressured to accept the adviser’s recommendations. If you’re unhappy with any aspect of the advice or service, talk it over with the adviser. If you’re still not satisfied, you can make a complaint through their internal dispute resolution service.

Master trusts and wraps

Master trusts and wraps are a way of gathering all of your investments into the one place, to make it easier for your adviser to manage and report on. This can add a layer of investment costs and make it harder for you to switch advisers down the track.

If your adviser recommends a master trust or wrap, ask them to explain how this benefits you. If you only have one or two investments you may be better off keeping it simple.

Cash management and managed discretionary accounts

A cash management account is a transaction account used to hold surplus funds as you buy and sell investments. You will probably only need one of these if you are paying an adviser or stock broker to actively manage your investments. Active management is where you buy and sell investments, such as shares, frequently in an effort to beat the market return. This can be very costly and may not actually result in better returns.

A managed discretionary account is where you give your financial adviser access to your cash management account (known as a ‘third party authority’) so they can buy and sell securities on your behalf. We don’t recommend this as you risk having your money invested in products that may not be suitable for you and it makes it easier for your adviser to commit fraud (even if this is only a remote risk).

Important: Never write cheques payable to your adviser.

Never write cheques payable to your adviser, or transfer money directly to your adviser’s account, if the money will be used for investments. Make the cheque payable to, or transfer of money to, the product provider instead.

Ongoing financial advice

If you have agreed to ongoing advice, you should get a review of your financial plan, at least annually, to make sure it’s still appropriate for you.

During your annual advice review, discuss any changes to your goals, personal circumstances or financial situation, and how you are tracking towards your goals. Review any personal insurance cover to make sure it’s still appropriate.

Your adviser should tell you if you could be affected by any changes to legislation, the economy, or financial products, and whether any adjustments need to be made to your financial plan.

After your annual review, you should receive a new SOA or Record of Advice (ROA) if any changes have been made to your financial plan.

Your review is a good opportunity to think about whether you’re getting value for your ongoing advice fee.

Updating your adviser between reviews

It’s important to update your adviser about any changes in your circumstances so they can adjust your plan to keep it relevant to you.

Fees for no service

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, found numerous instances where financial advice clients had been charged ongoing fees but not getting any service.

If you are paying ongoing advice fees, make sure you get the services you paid for. If you have paid fees for services you haven’t received, lodge a complaint through the bank or licensee’s internal dispute resolution system as you may be entitled to a refund and compensation.

You can stop paying for ongoing advice at any time by giving your adviser written notice that you wish to end the ongoing advice service. Many people prefer to pay for ongoing advice as and when they need it.

Ending your relationship with an adviser

If you decide you no longer want ongoing financial advice, there are a few things to consider.

Some financial products, like master trusts for example, can only be accessed through a financial adviser, so if you decide to end your relationship with them you may also have to leave the products they recommended, or get a new adviser.

If you leave or switch advisers, consider:

  • selling and buying costs
  • changes to any government assistance you’re receiving
  • being out of the market (which could be an advantage or disadvantage depending on timing)
  • income and capital gains tax

If you decide to switch advisers or leave an investment product, you need to be satisfied that it is worth the cost of doing so.