Along with establishing that your prospective financial advisor is in fact authorized 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 aware 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 license 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 dependent 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:
- Who is your main client base, and what are your specialty areas?
- How often will we meet or be in contact, and what information will I receive upon each meeting?
- How will you monitor and manage my investments, and how will I be consulted on decisions?
- Do you receive any commissions or incentives from certain financial products? How will you choose which products and services to recommend to me?
- Who will manage my account when you are away?
- 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 checks 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