After researching super funds and learning how they operate, some consumers will still need to talk to a financial adviser about tax, investment or retirement planning advice. But how do you find a good financial adviser?
By Alex Dunnin

KEY POINTS
A financial adviser is a trained expert in finances, taxation, investments and superannuation. They should have an up to date license and should also have industry recognised qualifications. Their personal brochure is called a Financial Services Guide. To get the best value from your adviser you should try to understand how their fees operate.

Many consumers have found SelectingSuper to be a great source of information about superannuation and how to choose between different super funds. But sometimes your questions move beyond this to being about needing tax advice, investment advice, and advice about getting the best retirement and pension structures.
When you cross into this zone its probably time to talk to a financial adviser. To do this you should try to understand what a financial adviser does, how to find a good one, and how much they will charge you.

What is a financial adviser?

A financial adviser is a trained expert who knows about and is trained in helping you identify your financial goals, develop a plan of attack to help you achieve these goals, review your progress and re-assess your plan along the way to make sure it stays relevant.

When trying to identify your goals, it means defining what you are trying to achieve? Are you trying to save for a home deposit, a new car, a holiday? Do you need to get your budget on track? Is your super up to scratch? Do you want to build an investment portfolio? Will you have enough money to pay for your children’s education? Are you planning retirement? As you can see, superannuation is just part of what a good financial does.

A financial adviser can also help you solve real problems. Eg, are you being retrenched and you need advice about how to manage your financial affairs? Have you received an inheritance and you need help about how to investment and manage it wisely?

After you’ve defined your goals you’ll then probably want to develop a plan of attack and prioritise what’s most important. Doing this may mean drawing up a budget, checking your insurance is up to scratch, investigating if you have enough super, or even just developing a savings plan. And are your loans structured as efficiently as possible? Are you paying too much tax? Are you paying too much in investment and superannuation fees?

And as any good plan needs to be reviewed and updated, so does your financial plan. A good financial adviser will help you do this. Eg, if you have been offered a redundancy package you might need to change your financial plan substantially, are your savings and investments growing as fast as they should, and are you minimising the tax on your investments?

How do I know a financial adviser is any good?

Your financial adviser should be an expert with an up to date and valid license, will have industry recognised qualifications, and will provide you with a Financial Services Guide that outlines everything about who they are and what they do.

They should be licensed with the Australian Securities and Investments Commission (ASIC) as a principal adviser or they must be authorised by their employer, who is licensed, to represent them.

The reason you should use a licensed advisers is because they, or their company, train their staff and representatives and take responsibility for what they do. This means they should have systems in place to respond to any of your complaints and they also carry professional indemnity insurance. If something goes wrong, both of these back-ups are there to help you.

There are five main qualifications you should look for in a financial adviser:

1. CFP - Certified Financial Planner
2. DFP - Diploma in Financial Planning
3. GdipPlanning - Graduate Diploma in Financial Planning
4. DFS - Diploma in Financial Studies
5. CPA (FPS) - Certified Practicing Accountant, Financial Planning Specialist Financial Services Guides

A financial adviser’s Financial Services Guide outlines who they are, their experience, their qualifications, their fees, their company and who its owned by, the services they provide, what products they are associated with or that they promote and sell, and how they handle things like customer complaints. Its their complete corporate brochure.

A Financial Services Guide may not be exciting reading, but its important reading. Reading this before you meet a financial adviser could actually help you enormously because you’ll really have a great head start about what you can ask them.

Before meeting with a financial adviser, ring them up and ask them to send it to you. A good adviser will be happy to do so. Do not deal with an adviser that doesn’t have a Financial Services Guide.

How much will a financial adviser charge me?

Financial advisers, like all professionals, can charge for their services in several ways. The important thing is for you to understand how your adviser charges and for you to be comfortable it is reasonable value. This doesn’t mean using the cheapest adviser you can find and it doesn’t mean using the most expensive either. Just use an adviser you are comfortable with, who’s fees you can afford, and who gives you – in your opinion - value for money.

The best way to ensure you receive value for money is to first, understand how their fees and charges work and second, interview at least three financial planners before agreeing to proceed with your financial plan. The important questions to ask each financial adviser you interview is what are their upfront fees for the plan and what are the ongoing charges. Above all though, ask what you will get – ie what type and level of ongoing services - for these fees and charges.

Digging deeper, there are two main ways financial advisers charge for their services: commissions or “fee for service”.

Commissions
If your financial adviser charges you commissions it means they receive a percentage share of whatever you invest through them. The good thing about commissions is that it means you do not have to pay anything up-front directly out of your own pocket. There are however two main types of commissions:

• Entry commissions : These are commissions based upon a share of every amount you invest each time you invest. Eg if you adviser charges 2% entry commission it means every time you place new or more money into your investments they deduct a 2% commission. A 2% commission on a $10,000 investment means the adviser receives $200 and you then invest the $9,800 balance.
  Remember that this commission is paying for the advice, help and support the financial adviser gives to you to help you choose and understand your investment. Of course your adviser wants you to be comfortable they have earned this fee; if you’re not then please discuss this with them.
  The average entry commission is around 2% though some advisers though can charge much less and some can charge up to 7% (but this is very rare). Some advisers – eg discount brokers – may however charge the full entry commission but rebate it (ie give it back to you later).
• Trail commissions : These are commissions based upon how much you have invested. Eg, a trail commission of 0.35% pa means that for every $100,000 you have invested the financial adviser receives a commission – a fee – of $350 each year.
  Trail commissions encourage your adviser to keep servicing your financial planning needs along your road to wealth. Because the trail commission is charged against the value of your investment portfolio rather than just how much you put in each time it means the size of the trail commission payments grow (or fall) in line with the size of your investment portfolio. Its their incentive to make sure your wealth grows too.
  The average trail commission is 0.35% pa. Not all financial advisers charge trail commissions while some receive trail commissions as high as one per cent. Its also very important to understand however that trail commissions are usually paid out of the fund manager fees you pay, meaning they are not extra fees but just part of the fee you have already paid to the fund manager(s). Of course, the lower the trail commission the lower your fund manager fees can be.

Fee for service
Fee for service means your adviser charges a fee based upon the time they spend with you working on your financial plan. Fee for service charges also can come in several shapes and sizes:

• Hourly rate fees : Average between $120-$400 per hour. These are similar to how much an experienced and well credentialed accountant will cost. Of course the very best expert advisers may charge more.
• Flat rate fees : Flat rate fees mean your adviser may charge a pre-determined set fee for a pre-determined set level of service. Eg, they will work with you to develop an introductory financial plan for a flat fee of $950 and they may meet with you twice a year to review your financial plan for another flat fee of $750 per meeting and review.
• Premium service fees : Some advisers also package a range of special extra services, such as reviewing your financial plan, monitoring your portfolio, recommending enhancements, and providing hot tips and investment leads. These premium services are usually charged for as a percentage of your investment portfolio. These premium service fees are similar to regular commissions except that while normal commissions are sale-based, premium service fees are service based. The average premium service fee is an additional 1% pa of your investment portfolio over and above other fees you are paying.
  A good tip is obviously to only pay these premium fees when you are ready to really use these services. These are premium al-acarte services and not all novice investors may need them, at least not yet anyway. If you’re not sure, please talk to your financial adviser about it.

Which fee types are better?

Is one type of fee structure better or worse than any other? Absolutely not. The important thing is simply for you to understand what the fees are and for you to feel comfortable you are getting value. The trick though is that good value for you may not be good value for me because your needs are different to mine.

Just remember, financial planning and finding the right financial adviser is a very personal thing. Think of it like trying to find your own personal wealth coach. This means you should not always look for the cheapest or the most expensive. But when looking for coaches you above all must look for one who has a track record, who you trust, and who is most likely to help you get results.

How do I find financial advisers in my area that meet my needs?

Click here to visit our sister service SelectAdviser.

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