You don’t have to use a financial adviser when investing, but a financial adviser can assist you in developing a long-term plan for your investing. A financial adviser can help you set an investment target (in terms of returns, risk and the level of income you may want to generate from your investments).
Why should I bother with a financial adviser?
If you’re a beginner investor or you’re planning to invest in assets you don’t know much about, then appointing a qualified and independent financial adviser who knows more than you on the subject can be useful.
Tip: You can learn more about investing by regularly visiting www.LearnerInvestor.com.au Conducting your own research on investing can also equip you with the knowledge necessary to make the decisions about what you need from an independent financial adviser.
An independent financial adviser can assist investors in the following ways:
- Information overload. Investing is a broad and diverse topic and the information available on the internet, in newspapers and in books is immense. An independent financial adviser can assist you in filtering the information and in identifying any legislative changes that may affect your investment decisions.
- Manage risk while building wealth. A good financial adviser should be able to assist you in building an investment portfolio that generates more wealth with less risk.
- Removing emotion from decision-making. A financial adviser can assist you in making rational investment decisions, rather than emotional decisions about certain investments. Also, a financial adviser should be able to allay unnecessary anxiety about rising and falling investment markets.
- Introducing discipline to the investment process. Working with a financial adviser can discipline you to ‘keep to the long-term plan’ rather than getting distracted by short-term issues facing investment markets.
How do I choose a financial adviser?
Finding the right independent financial adviser is probably one of the most significant financial decisions that you can make. Generally speaking, an independent adviser is not employed by a financial organisation that also distributes investment products. An independent adviser doesn’t receive commissions or other incentives for recommending investment products to a client.
If you select an adviser who is not independent, then be aware that the most important feature of quality financial advice is that it is about YOU, and not about the adviser or the adviser’s employer, or any financial organisation that may have a relationship with your adviser.
You need a financial adviser who:
- Listens to what you say
- Answers your questions, and answers them respectfully
- Responds to your concerns rather than fobs you off
- Returns phone calls, and hopefully within 24 hours
- Is honest about your circumstances and the markets; in other words, tells you what you need to know and not what you want to hear.
Note: Financial advisers are not tax experts. If the adviser you’re considering appointing is not a registered tax agent, then you’re likely to need to refer to an accountant at some stage to ensure that you understand the tax implications of any advice you receive, and the tax implications of any investment decision that you make.
Handy tips for selecting a financial adviser
The Australian Securities & Investments Commission (ASIC), the financial services industry regulator, suggests the following tips when choosing a financial adviser.
1. Deal only with professional financial advisers and planners who hold an Australian Financial Services Licence (AFSL), provided by ASIC.
Alternatively, the financial adviser must be an authorised representative of an AFSL holder, An authorised representative is authorised to represent a business that is licensed by ASIC. You can check that the financial advisory firm, or adviser, is licensed by visiting the ASIC website (www.asic.gov.au/licensees ) or by phoning ASIC’s Infoline on 1300 300 630.
2. Think about your financial situation and your financial goals.
According to ASIC, this will help you work out whether you need financial advice. If you do need financial advice, then you have a better idea about what type of advice that you want. For example, saving for a comfortable retirement or paying for your children’s education.
3. Ask family, friend or work colleagues for recommendations
If you decide that you do need a financial adviser, then ASIC suggests that you ask people you know for recommendations. Industry associations such as Organisations such as the Independent Financial Advisers Association of Australia (IFAAA), the Financial Planning Association (FPA) or CPA Australia can also refer you to financial advisers in your local area.
4. Speak to a few financial advisers
ASIC suggests speaking to a few financial advisers from different firms before making a decision. When you contact an adviser, ask the adviser to send the firm’s Financial Services Guide (FSG). The FSG s a legal document that must disclose all commissions payable, fees charged, adviser experience and ownership of the advising firm. You can then check if the services available suit your needs.
5. Ask about the experience and qualifications of the financial adviser
A financial adviser needs to be licensed, but a holding an AFSL licence doesn’t necessarily mean that an adviser is experienced or an expert in all areas of investing. According to ASIC, if you have a particular financial goal, then choose a financial adviser with expertise in your particular area.
6. Always ask what the advice will cost
Financial advice is not free, but if you pay for advice you should expect a professional service. If an adviser is remunerated via commissions, then the advice you receive is not independent and the adviser is often rewarded for selling more of a particular product, depending on the incentive schemes available with the adviser’s firm. Other financial advisers charge fees rather than receive commissions, and any adviser that receives commissions cannot call themselves independent.
7. Find out whether there are restrictions on the financial products that the financial adviser can recommend
According to ASIC, some advisers are limited to financial products issued by the organisation they work for, or their parent company. Quoting directly from the ASIC website: “Unless you’ve decided that you especially want one of those financial products, this won’t necessarily suit your needs. Even if the product is suitable, there may be other less expensive alternatives that are just as good or even better.”
This article first appeared on www.LearnerInvestor.com.au, a free information website for investors and beginner investors. This article is written by Trish Power, co-founder of consumer information website, www.LearnerInvestor.com.au, and co-author of You Don't Have to be Rich to Become Wealthy (Wrightbooks), and author of Superannuation For Dummies (Wiley) and DIY Super For Dummies (Wiley).