OK: the time has come to get serious about your future, bring on the big guns and seek some professional advice. Good thinking! But how to make sure you get Warren Buffet and not Bernie Madoff behind the financial controls?
Here’s a handy checklist to get you on track for a beautiful friendship with your very own financial Svengali.
#1 Summon up some word-of-mouth magic
It might sound obvious, but the best first step is to activate your network. After all, this (apart from spying on the kids/grandkids) is what Facebook is for! Personal experience is the best advertisement. And if the advice comes from your cohort, you’ll know that the advisor has good experience in advising, with similar financial situations and goals to you.
Another idea: if you have a tax accountant, they may be able to put you in touch with trusted contacts.
#2 Search with smarts
Rather than just Googling a ‘financial planner’ in your area, do some filtering by going through a professional association. Use the ‘find a planner’ tool at the Financial Planning Association of Australia – members sign up to a code of ethics and professional conduct, and a majority of them have Certified Financial Planner status, the gold standard in financial planning.
#3 Follow the money trail
Going into the search process, it’s important to understand the different ways financial planners and advisors make their living, because it directly impacts the kind of advice you’ll get.
Generally speaking there are two types of advisors: commission-based and fee-only. Commission-based advisors don't charge you – they make their money from the companies (investment and insurance funds, for example) that they recommend to you. You are the product, not the client. While the bulk of advisors are totally legit – and governed by rules that mean they have to act in your best interests – some people have concerns about the impartiality of their advice to you. Eyes wide open.
Fee-only advisors make money through charging you – a flat fee, an hourly rate or a percentage of the assets they manage. They too have a fiduciary duty to act in your best interest, but it’ll cost you up front. (Don’t be confused by fee-based advisors, who are a mixture of the two, charging you a fee, but also selling financial products on commission, which means the same conflict of interest exists.)
#4 Check their credentials
Always look for a financial advisor who holds an Australian Financial Services (AFS) License issued by the Australian Securities and Investments Commission (ASIC), the financial services cop on the beat. When making initial contact, ask for a copy of their Financial Services Guide, which explains the service offered, fees charged and how they deal with complaints.
The ASIC register holds records of qualifications and areas of experience for all licensed advisors, and the banned and disqualified register will save you from being lassoed by a known cowboy or girl.
When you meet your potential advisor, feel free to ask for references to other clients you can speak to about their experience.
#5 Get the lowdown face-to-face
Whether it’s in person or over the phone, a real live chat with your potential financial planner is imperative. Most will offer a complimentary introductory session – take advantage of this and go in prepared. Meet a few candidates before settling on one, so you have a basis for comparison.
Ask about their experience. How long have they been practicing? What’s their area of expertise? If you’re particularly interested in retirement planning, you want someone who knows this area inside out and has tried and tested strategies.
Make sure you understand what services they offer. Do they provide comprehensive financial planning, or just investment management? It may be useful to ask an open-ended question like: ‘How will you help me reach my financial goals?’ to unearth any gaps, misunderstandings or differences in philosophy.
#6 Evaluate their style
During the meeting, you should be doing most of the talking. Feel encouraged if they spend a good chunk of time getting your full financial picture before recommending any specific investments. Red flags: giving you advice without hearing your story, rushing you to make decisions, or promising you high returns (the stock market averages 6-7%; anything above that and they may either dabble in Evel Kneivel-style investment strategies or be careless with the truth).
Ask them to explain anything tricky to you. Can you understand their response? You want to work with someone who can explain financial concepts to you in a language you can understand. How else can you make the best call?
Finally, what does your gut say? Personal chemistry matters, and you have to trust this person: they are going to know more about you than your accountant, doctor and many of your best friends. A feeling of trust and a good rapport are essential. And once you’ve found this special someone, you can embark on the great adventure of bringing your dream future to life!