We're in the need to see a financial advisor due to receiving an inheritance. In the wake of the Banking Royal Commission, I suspect a lot may have disappeared? Have the recommendations been adopted for financial advisors with regard to commissions etc?
What questions should I ask a prospective advisor to see if they are above-board?
funny how people don't ask mortgage brokers the same thing?
I did (re mortgage). Paid an upfront fee and got 3x that back in rebates/commissions that they passed through to me. Adviser is fully independent so won;t just recommend those that are in a limited panel/pay the highest commission. Have advised family members to do the same with the financial adviser - many will do fee for service only.
@knasty - can you tell me the name of the advisor that actually pays you back the commission ?
@zoombie: @zoombie http://www.independentmortgageplanners.com.au/. The cost/benefit of doing it this way really depends on the size of the facility as the upfront and trail fees are a % of the facility size/balance.
It is like $0 or low up front fees on mobile phone contracts. You pay on the back end.
You don’t. Do you really want someone who did a 6 week course at Tafe steering your finances?
Sadly they are probably still in front of many people who dont even understand that they should probably pay extra off their credit card before their home loan. NB about 5% have a phd/masters degree, 40% have a bachelor degree, most others then have Advanced Diploma or Diploma, with everyone to have post grad quals over next 5 years. There is a portion that may still be around with RG146 quals only but there have also been ~8000 advisers cancel their license in the past 2 years with more still to go. Experience and transparency are also valuable in the equation, a new graduate effectively knows nothing.
How on earth would a PhD help a financial planner? What a complete waste of education. The fact is, if you are any good in the finance world, you’re not working in financial advice. You’re working as a stock broker, an analyst, or something that doesn’t have you sitting in a shitty suburban office talking to mum and dad about their super.
Why does anyone do a PhD? The uber nerd academics are everywhere, but study of behavioral finance is getting bigger. But your example will soon be gone, as it's not financially or acceptable anymore, so mum and dad now have no one to talk to, unless they will pay 3 to 5k per year. Your other examples are different people and roles, analyst is screen based research pure finance maths guy, stockbroker makes money on turnover, not rising stocks, a good adviser wants to help people live their bsst life with the money they have, now and in future. Like comparing a personal trainer to a professional athlete, different skills, role, outcomes. Many advisers are also self employed, not employees, another big difference.
@Terbo: Please, spare me your diatribe. Everyone with even a smidgen of intelligence knows financial adviser is a joke of a 'profession', right up there with personal shoppers and wedding photographers.
also been ~8000 advisers cancel their license in the past 2 years with more still to go.
Does that mean there are 8000 advisers leaving the industry? Is that a definite number and where did you get it from?
8000 times $80k. That is a lot of AMG.
Probably another 3000 - 5000 still to go, as dealer groups close, cancel small business licenses, increase fees, and those not passing the exam by dec 2021 or not going back to uni for 1 - 8 post grad subjects.
https://www.moneymanagement.com.au/news/financial-planning/a…
https://www.financialstandard.com.au/news/almost-2000-advise…
https://www.ifa.com.au/news/28234-mass-exodus-of-advisers-as…
@Terbo: Would not disagree with those numbers but the register of financial advisers also contains accountants, foreign exchange traders and time-share holiday salespeople and a small percentage of the departures would be coming from those areas as well as new standards make it too hard to dabble in financial advice.
Also many advisers leaving are 55+ and are not going to make the leap to new standards so are getting out early.
Well, some of them don't even sit in the exam —> https://www.smh.com.au/business/macquarie-group-file-shows-c…
Find one that has a satisfaction guarantee. If they say 5% ROI than they have to deliver a minimum of 5%.
I've never heard of a financial advisor guaranteeing a rate of return. Where did you get that idea from?
Financial advisors provide a service. Why would anyone pay for a service if the service provider doesn't deliver what they promise?
What promise are you referring to? I suspect this is just a fantasy that you have created.
I've never seen an advisor offer guarantees like that.
Yeah, no adviser will offer a performance guarantee.
A good adviser will appropriately appraise you of the risks associated with what they are proposing, including the fact that performance cannot be guaranteed and that performance over any given period can be expected to be negative pending the asset classes underpinning the recommendation.
Thanks for explaining.
So basically "money for nothing".
There is probably something you are good at, therefore it comes easy and seems like second nature to you. Money and numbers are a bit like that for many people. They either are interested, or make an effort to understand it on some level and how it impacts their life and manage ok, although quite often they could be doing better but dont know what they dont know. Then there are others (many others) that dont get it, dont want to get it and just want someone to fix it for them, or at least hold their hand while they fix it, whether thats cashflow (income, tax, expenses, saving), debt management, personal protection, estate planning, superannuation, investment or achieving life goals.
The money is paid for the advice. It's not paid for the outcome.
Whether or not that is acceptable or value for money is a decision for each customer/potential customer.
There are products out there that can give you capital guarantee arrangements/"no loss" outcomes, etc., but you pay from these guarantees through the cost of the product itself. Even these will only provide you with a "no loss" guarantee (excluding product costs), not a guaranteed positive return.
Well you are paying for their time & skills (advice). Same as doctors. I don't think doctors would guarantee to fix your issue, same way a panadol doesn't "guarantee" your headache will go away.
The biggest variable in financial outcomes can be found in the mirror. Do some navel gazing and then work with an adviser to achieve those aims. The advice doesnt even have to involve a financial product eg pay hecs or home loan, keep cash reserve, but if it does, stick with simple stuff that you understand (fixed interest, shares, property, with shares giving the most flexibility and longer term income and growth returns). You dont necessarily need to find the cheapest products as there may be other drawbacks re access, admin and returns. Anyone that promises you a specific/high return is full of it, they definitely SHOULDNT be hanging their hat on the supposed returns they can facilitate. They have no control of investment markets, they can only help you to understand your needs, behaviour, structure, strategy, asset allocation and investment selection. After that you just need to go and do something else and wait for your investment to do it's thing over the next 5 - 20 years. Note that there are no 'commissions' payable from any investment products in Australia (only for insurance and loans) and that the requirements for data collection, research, compliance and advice for financial advisers is now through the roof - it takes at least 10 hours to provide even simple written personal advice now, so dont be surprised if you get a quote for $3 - $5,000 for the work, regardless of how much money you wish to invest. Here's a random link that has 10 questions to ask yourself before you see an adviser https://www.forbes.com/sites/brianthompson1/2017/10/08/10-qu…
The biggest variable in financial outcomes can be found in the mirror
The how to pick a mirror discussion is some where. Can anyone offer a link?
I would go for a referral from family and friends before seeing one.
I have a friend who is a FA and he believes the reason it's difficult to gauge the success of a FA is because their job is to make sure you don't do something dumb with your money long term.
If a FA told you "watch out, don't do that" as you were about to jump of a (financial) cliff - that advice might be worth a few thousand and save you from losing hundreds of thousands down the track.
I would consider a family run or small financial planning firm. Look for reviews on Facebook or whatever.
I've spoken with a financial planner (who works at one of the big banks) and he said that the bad eggs were all fired during the royal commission. The one I spoke to took care of his clients and didn't push the products the bank wanted him to, he never won any awards but was kept on after the RC. Ironically the FPs/FAs that won all the awards were fired, as they should be. Was a very entertaining story.
This is the easiest question I’ve answered in a while.
Don’t go with any advisor that’s happy to accept your money. Seriously.
What, they should be sad they accept money for their services and providing for their family?
Nobody actually answered the OP's question, which is what questions he should ask. Try these:
What are your qualifications? (you want a degree in a finance related field at a minimum, preferably also a CFP that was earned within the last 10 years or so, after they stopped giving them out and you actually had to earn them)
How many years experience do you have as an adviser? (too many = a jaded adviser, too few = an inexperienced adviser. More than 5 is fine)
Is your business affiliated or licensed by any large institutions? Who? (try and avoid advisers tied to the banks, AMP or any large instos as your money invariably ends up there. A privately owned business that holds its own Australian Financial Securities License is best)
What is the ownership structure of your business?
How are you paid?
How do they charge fees? (can be fixed fee or asset based % or a mixture of both, no right or wrong answer but you must know what you are paying)
What sort of investments do you use?
What research do you have access to?
What services can you expect? (regular review meetings, performance reports, newsletters, seminars etc.)
That's a sample of what you should be asking. Moneysmart also has some advice:
https://moneysmart.gov.au/financial-advice/choosing-a-financ…
great questions 👌
Great response to OP.
I would add if they dick you round with the responses, insist on answers, and if those answers are vague, go elsewhere.
Also make sure you have a rapport with them. If you don't feel comfortable, even if they sound credible, look somewhere else. You wouldn't go to a qualified doctor if they made you uneasy, why do the same with someone managing your money.
And if you have a partner make sure they feel the same. Women and men often have different views on how they see people and if your partner is uneasy consider someone else. Once again not much point having that angst when it comes to your money. You want advice to make your live easier/better, not to add another stress point.
Get a copy of Scott Pape’s The Barefoot Investor (updated late 2019) book. For about $25 he offers great info on this and a wide variety of financial independence topics. Good luck!
TL;DR Dont go with FA's who charge a %-based fee.
It depends. If you only have $10k and they charge 1% then you've got a bargain. If 1% on $1m well you'll debate that.
Then it is like credit card sign up bonuses, someone is paying for your freebie.
If it is 1% off $10k then $100 vs $1k flat fee what would you choose? 1% off $1m is $10k vs $1000 flat fee.
I always ask people, if you want to determine what fee you pay. How much do you think you're worth? The person you engage should be paid the same more or less but definitely not cut corner pricing.
countryboy has summed up some great questions
Highly recommend James from https://www.financialadvisor.com.au/
Is he your adviser?
I met him once yonks ago, and he said his fee is 1% p.a. of total asset value..
Financial advisors are salespeople. They have a bunch of products that they try to sell you. What you need is an accountant… And the right questions to ask them.
Accountants aren't allowed to give financial advice anymore. They are not happy but that is the rule because they don't hold AFSL. Accountants thinks they know a lot, they do but not all of it. You never see an investment banker want to be an accountant, you never see a top ASX25 company accountant go into public practice. Pay & calibre of people had a lot to do with it.
Accountant to help you tax plan, yes but would you ask your accountant which piece of land to buy, materials and trades people to select to build the house? You wouldn't ask your public accountant to work out P/Es for companies you should invest in. Not their field. Even financial analysts get it wrong.
Ask them the return on capital they have received from their own investments over the last five years.
Financial Advisors must be licensed
Just ask to see the license
Having said that most are as useless as tits on a bull
A lot of people have no financial literacy. A financial adviser may be of help(I haven't tried a professional one but I do seek opinion from the wise/experts I know) but you should be in the driving seat to achieve your financial goals. The vast majority of the financial advisers especially the mum & dad type have access to are just scum.
As someone mentioned, moneysmart is good place to look for questions:
https://moneysmart.gov.au/financial-advice/choosing-a-financ…
I think it is also important to know what are your goals in life and also do your homework in terms of what is your savings in the past 6 months.
We went to 3 financial planners, by searching the internet, recommendations from colleagues.
All 3 of them advised to buy another investment property for efficient tax saving purposes. Although in theory it made sense to us, however already having one investment property, we were not convinced that this was the best way to diversify our portfolio, given that we had not ventured into share markets to diversify our portfolio.
Also 3 of them gave vague answers when I questioned them around the growth rate of the real estate market in the current situation (before Covid in QLD state) that they had factored into the financial plan for us. Also when I questioned around the investment property principal and interest cost, along with stamp duty, maintenance, insurance cost and the final outcome- there answers were vague around negative gearing. All 3 FA offered to find us property or mentioned that they knew real estate agents who could get us blue chip real estate investment properties before it is available to the public. I thought it was good in theory but not suited to us and went ahead and invested a small portion (the cost of stamp duty, had we bought the property as suggested by the FA's) into share market during the Covid crash era.
Will wait and see over the next 10 years, whether it grows or not? If IT grows, well good enough,if not, I would think that I payed the stamp duty cost on the hypothetical property before covid when the markets were still running high.
Also would recommend reading the Barefoot investor- simple and easy to understand. (PS- I receive no kickbacks from recommending this book :) )
Can I pay you a one off fixed fee. Products need to be able to be accessed without going through the said advisor. (No risk of them parking money with their mates / referrals)