How To Find The Best Financial Advisor

As stated, a financial advisor is someone who helps you create a plan to reach your financial goals. This may include advice around budgeting; shares, crypto or property investments; superannuation; retirement planning; tax information or insurance needs.

In Australia, there are two different types of financial advice one can receive from a financial advisor: general, or personal.

General financial advice

General financial advice is general by nature. It doesn’t take into account your personal situation or goals, nor consider how it might affect you personally. They may help you to identify your options, but someone offering general financial advice won’t tell you how to make the best financial decision in line with your personal situation.

You may seek general advice if you want to confirm or compare different financial products, or don’t want to spend money on tailored advice.

Personal financial advice

Personal financial advice, on the other hand, is tailored to your circumstances. It takes into consideration your financial situation and goals, and an advisor offering personal financial advice must act in your best interest.

There are different kinds of personal financial advice, such as simple advice; comprehensive advice; or ongoing advice. Simple advice means help with a singular financial issue, such as how much you should be contributing to your superannuation. Comprehensive financial advice will help you develop a plan to reach your financial goals through a range of actions; and ongoing advice involves the monitoring and reviewing of your financial plan and investments on a regular basis.

You may seek a personal financial advisor for various instances, such as when you are going through a significant life event; have inherited a large amount of money; have been appointed Power of Attorney for someone else; are looking to make a big investment, and so on.

In order for a financial advisor to provide personal financial advice, they need to be registered and have an AFSL—an Australian Financial Services Licence.

ASIC keeps an online register, which will enable you to find out whether your prospective financial advisor is qualified and accredited.

The register allows individuals to check that a financial advisor is authorised to provide financial advice and find information about a prospective advisor before getting financial advice from them. The register also seeks to improve the ability to access the qualifications, experience and employment history of financial advisors, as well as ASIC’s ability to identify and monitor financial advisors in Australia.

According to the ASIC website, financial advisors listed on the register are defined by those who:

• are an AFS licensee, an authorised representative, employee or director of an AFS licensee, or an employee or director of a related body corporate of an AFS licensee; and
• are authorised to provide personal advice in relation to relevant financial products to retail clients (consumers).

ASIC notes that ‘relevant financial products’ do not include basic banking products, general insurance products, consumer credit insurance, or a combination of any of those products. A financial advisor who has their own AFS licence is listed on the register along with the AFS Licencees Register, while financial advisors who are also authorised representatives are listed on the register along with the Authorised Representatives Register.

In Australia, when looking for a financial advisor, you will often come across the term ‘independent financial advisor’. So what does being independent actually mean? According to ASIC, there’s a strict definition:

“Under [Section 923A of] the Corporations Act, a person who carries on a financial services business or provides a financial service is prohibited from using the terms ‘independent’, ‘impartial’ or ‘unbiased’, or any other term ‘of like import’ in relation to the business or service except where the person meets certain conditions, such as not receiving any commissions, volume-based payments or other gifts or benefits.”

Ultimately, an independent financial advisor must have no affiliation or receive any benefits from the products or services they recommend.

Many independent financial advisors are members of the Profession of Independent Financial Advisers (PIFA), which claims to “guide Australians on how to find Financial Advisers who practice without incentive, and without conflicts” and has strict criteria for its members to meet. This means that not just anyone can call themselves independent financial advisors. This doesn’t mean there aren’t ethical advisers in the industry: just that the ability to call yourself independent is subject to a strict set of criteria.

Along with establishing that your prospective financial advisor is in fact authorised and registered to give financial advice, there are other important factors to take into account.

Consider what you are hoping to gain from financial advice

Often, people turn to financial advice when in a changing season of life–such as starting a family, planning for retirement or after receiving an inheritance. You may also turn to a financial advisor when looking to get out of debt, or wanting to become more conscious of your investment abilities in the long term.

When choosing an advisor, it’s important to consider your stage of life and what you want to get out of the advice. Consider your short and long term goals along with how long you anticipate wanting to work with a financial advisor for.

Check their financial services guide

“When looking for an advisor, make sure to read your adviser’s Financial Services Guide to learn about their fees and services, and how they deal with complaints,” an ASIC spokesperson tells Forbes Advisor.

These are usually listed on a financial advisor’s website, or you can request a copy prior to discussing any agreement with them.

A financial services guide will show the services a financial advisor offers; how they charge their fees; who owns the company; any links to product providers; and their AFS licence number.

Ensure you are aware of the fees

Financial advisors charge varying fees depending on their services and the type of advice you are seeking. It’s important you compare the fees charged by different advisers to make sure you’re getting a good deal, an ASIC spokesperson advises.

As Moneysmart explains, these are usually broken down into fixed fees, percentage-based fees and commission.

Fixed fees commonly include: a one-off statement of advice (SOA) fee; a one-off fee for implementing the financial advice; an ongoing fee (usually charged on a monthly basis) for their advice and services; a one-off fee for a financial plan review; a fixed fee per hour to answer questions that are not part of the ongoing advice; and other fixed fees dependable on additional services.

Some financial advisors also charge an early termination fee, if you have entered into an ongoing agreement but decide to terminate that agreement before its agreed end date.

Percentage-based fees also need to be disclosed by your financial advisor. These usually include an asset-based percentage fee, which is a fee based on the total value of your current portfolio (the higher value of assets you have means the higher the fee will be). This fee is paid regardless of how well your investments perform.

If your assets do perform well, you will also be required to pay an investment management fee. It’s an additional percentage fee based on the performance of your investments, and is usually set by a pre-discussed benchmark when your agreement is commencing.

Be prepared with questions

When talking with a potential financial advisor, they will need information about your personal situation to understand whether they are best placed to help you. You should also have questions that you can ask to any prospective advisors to ensure you believe they fit your needs also.

When you meet an advisor, ask them:

1. Who is your main client base, and what are your specialty areas?
2. How often will we meet or be in contact, and what information will I receive upon each meeting?
3. How will you monitor and manage my investments, and how will I be consulted on decisions?
4. Do you receive any commissions or incentives from certain financial products? How will you choose which products and services to recommend to me?
5. Who will manage my account when you are away?
6. If I choose to end our agreement, what will the process entail? Are there any penalty fees or notice periods I should be aware of?

Protect your money

Engaging with a financial advisor is still a risk, even if they are completely qualified, as you are giving someone else some control over your finances.

To protect your money, ASIC recommends you remain careful with how much access your advisor has to your investment accounts, and to inform your advisor if you are unhappy or concerned with their services.

Other precautions recommended by ASIC are:

• Don’t give your advisor power of attorney;
• Never sign a blank document;
• Put a time limit on any authority you give to buy and sell investments on your behalf;
• Insist all correspondence about your investments are sent to you, not just your advisor;
• Keep all your paperwork and electronic files in one place;
• For investments, write cheques or transfers payable to the product provider (not your advisor);and
• Regularly check transactions if you have an investment account or use an investment platform

Due to the ever growing uptick in digitalisation of our everyday lives, online scams are also unfortunately growing in nature.

According to data from Scamwatch, Australians lost more than $205 million to scams between January 1 and May 1, 2022. It’s a 166% increase compared to the same period last year, with the majority lost to investment scams ($158 million).

One type of investment scam is when a fraudulent individual or entity claims to be a financial advisor. They may then tell you that they can invest large amounts of money on your behalf for guaranteed returns that will help you reach your savings goals, or that they need to access your financial institution themselves to be able to conduct their financial advisory process.

To avoid falling victim to such scams, remember that anyone who gives personal financial advice and even most general advice providers must have an Australian financial services (AFS) licence.

“Always have an accredited financial or legal advisor check any potential investment opportunity before you send any money or provide your credit card details and only ever invest as much as you can afford to lose,” ACCC Deputy Chair Delia Rickard tells Australians.

Related: Optus Data Breach: Six Scams to Watch Out For

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