What is financial advice and do you need it? This guide and our video Financial Advisers: The Facts and the Fiction will:
If you are looking for a financial adviser it’s important to find someone you can trust to act in your best interests. Advisers who get paid a percentage of the funds they manage for you or have incentives to sell particular products to you, have what are called ‘conflicts of interest’. This means they may be tempted to put their interests ahead of yours. We strongly recommend that you use a genuine fee-for-service adviser like those listed under the ADF Financial Advice Referral Program. These advisers will charge you an hourly rate or set fee for the work they do.
Financial advice is where you seek help from a suitably qualified professional to help you make decisions about money. A financial adviser looks at your current financial position and goals and then recommends ways to achieve them.
Financial advice can help you set goals, do a budget, choose investments and superannuation, plan for retirement and advise on insurance and estate planning.
In Australia, financial advisers must be licensed by the Australian Securities & Investments Commission (ASIC), the Government Regulator, or be an authorised representative of an organisation licensed by ASIC. ASIC’s financial advisers register will tell you if an adviser is authorised to give you the type of advice you want.
Financial advisers provide planning and investment advice, for a fee.
Financial counselling is a free service by a qualified professional who can provide you with information, advice and advocacy if you are experiencing financial difficulty.
Financial counsellors do not sell products. They listen and provide valuable emotional and practical support for people in need. They are often based in community organisations, charities and local government agencies. If you are experiencing problems with debt or are unable to meet your ongoing expenses, read our problems with debt money guide.
Not everyone needs financial advice but good advice can help you achieve your goals and manage financial risks for you and your family. It can help you develop a road map to reach your goals and identify suitable investment options.
Financial advice may be useful at times of change in your life, like starting a family, being deployed, planning for transition or managing an inheritance. You just need to estimate whether the benefits outweigh the cost.
You may prefer to develop your own financial plan to better manage your money and our services can help you do this. However, if you’re not confident going it alone, paying for financial advice may be better than doing nothing at all.
One reason people don’t seek advice is the poor reputation of the financial advice industry in Australia. According to the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there are numerous instances where clients have ‘been given poor advice that has left them worse off than they would have been if proper advice had been given.’
An expensive service which leaves you worse off is not a great value proposition. So it’s more important than ever to spend some time choosing a financial adviser.
There are several types of advice, offering different levels of service, depending on what you need, how much money you have and what you are trying to achieve.
General advice does not take into account your needs or personal circumstances. For example, being given information about a product you’re interested in, with no consideration of your financial goals or other factors and no actual recommendation, would be general advice.
General advice about financial products or investments can be given by someone who holds, or works for a company that has, an Australian financial services (AFS) licence. You must be told upfront that you are only receiving general advice.
Often, general advice is given for free by someone who is selling a particular financial product, such as an insurance policy. They may explain the features of the product and what the policy does and doesn’t cover, but not recommend whether you should take out the policy.
When someone gives you personal financial advice they should consider your particular goals and circumstances. This type of advice should only be given by a licensed financial adviser.
Personal financial advice may include:
There are various ways to get advice. The method you choose will likely be based on your needs, your preference and how much you are prepared to pay.
This may be suitable if you are looking for comprehensive advice, have complex issues, or would be more comfortable meeting an adviser in person, assuming it is practical for you to do so.
Phone or video-based advice
This is often used for single-issue personal advice or general advice, in conjunction with a follow up email or letter. Video chat or conferencing also allows people in rural and remote areas, or those who have difficulty travelling, to receive broader face-to-face advice.
Robo advice (also known as digital financial product advice or automated advice) is computer-generated advice, with no interaction with a human financial adviser. You enter details such as income and expenses, assets and liabilities, goals, objectives and the amount of risk you’re prepared to take, into a computer program and, based on this information, it generates financial advice.
This sort of advice is still developing and is currently more suitable for simple tasks, such as choosing appropriate investments. It relies heavily on you entering correct data and is likely to be much cheaper than using a human adviser. However, the program operator must still have an AFS licence or be a representative of an AFS licensee.
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 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.
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.
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.
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.
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.
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.
Watch our video Financial Advisers: The Facts and the Fiction for more information on choosing an appropriate adviser.
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.
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:
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.
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.
Think of this like an interview process, where you are interviewing them. It may be useful to ask about the following:
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.
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.
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?
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.
For more information see ‘What’s your tolerance for risk?’ section of our Investing money guide.
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:
You should reconsider your choice of adviser if they:
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.
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:
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 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.
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).
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.
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.
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.
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:
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.
It’s important to know how to protect yourself from fraud or other forms of misconduct by a financial adviser, what to do if your adviser has been banned, and how to complain about a financial adviser.
Even if you trust your adviser, it’s not a good idea to give them control over your money. Keep control over your finances and avoid potential fraud by:
Act immediately if something doesn’t look right. Contact your adviser and, if the matter is not sorted out quickly, make a formal complaint. If you suspect fraud or dishonesty, contact your local police and ASIC. For more information see ASIC’s guide on how to complain.
If you’re unhappy with any aspect of the advice or service you receive, try to talk it over with the adviser. If you’re not happy with the fees you are being charged, see if they are willing to renegotiate their fees.
If you are still not satisfied (or your adviser won’t meet with you), make a complaint through the adviser’s internal dispute resolution system, and consider looking for a new adviser. Your adviser’s financial services guide will tell you how to make a complaint.
You should receive an acknowledgement letter of internal dispute within 14 days. The advice provider has 45 days to give you a final response.
If you’re unhappy with the response, you can contact the Australian Financial Complaints Authority (AFCA).
You can also complain to the adviser’s industry association and/or professional body. Check ASIC’s financial advisers register to see which associations or professional bodies the adviser belongs to.
If the advice has left you in a worse financial position than before you received it, you can ask to have your advice reviewed. You may be entitled to a remediation payment if the advice is found to be inappropriate for your circumstances or you suffered a loss as a result of a criminal act by your adviser.
There are a number of reasons why a financial adviser may be banned from providing financial advice, including:
If your financial adviser has been banned from providing advice, they can no longer give you advice on financial products or services; however, they can offer you the services of another adviser working under the same Australian financial services (AFS) licence.
If your banned adviser contacts you about providing financial advice, ask them to stop calling you and make a complaint to ASIC. You can also let your new adviser know, if you have one.
Find out why the adviser has been banned
If your adviser was banned from providing financial advice, read ASIC’s media release about the banning to find out why. This may help you work out whether the advice you received was appropriate.
Cancel any authorities you have given
If your adviser has been banned, immediately cancel any authorities you have given them, such as a power of attorney, access to online accounts or authorities to transact on your behalf. Let your adviser know, in writing, that you have cancelled all such authorities, effect immediately. Make sure all correspondence regarding your investments comes to you and not the adviser.
Review the advice you’ve been given
If you are concerned about the advice provided by the banned adviser, ask the advice firm to review it. If you don’t have your Statement of Advice (SOA), request a copy from your adviser or their advice firm.
If your advice has been part of a review process, you can ask the advice firm what they found and how they plan to rectify any inappropriate advice. If you’re not happy with the company’s response, contact their external dispute resolution scheme.
When reviewing the advice you received, consider whether it:
Check the ongoing advice fees you are paying
If you pay an ongoing advice fee to the adviser, you may be allocated another adviser within the advice firm. If you’re not happy with this arrangement, you can opt out of paying ongoing advice fees and perhaps consider choosing another adviser.
Choosing a new financial adviser
If you want to continue getting advice from the same advice firm, you can allow them to allocate a new adviser to you. You don’t have to accept the new adviser; you can do your own research and interview the new adviser to make sure they are the right fit for you.
You may choose to start fresh with a new financial adviser from a different advice firm.
For more information on financial planning and different types of investments, go to www.moneysmart.gov.au.
For information on investments traded on the stock exchange, go to the Australian Securities Exchange.
To find a financial planner
To find a financial planner, go to the ADF Financial Advice Referral Program or use the search function on industry association websites to find an adviser in your area.
To find an accountant
To find an accountant who is licenced to offer financial advice, in addition to accounting services:
To make a complaint about a financial service provider, go to the Australian Financial Complaints Authority.
For free financial information and seminars, as well as help on government benefits, go to the Department of Human Services.