It’s understandable for Australians to be sceptical of hiring financial advisors.
Many of us think that we can very well manage our own money, and when we need “financial tips”, we can just Google it, right?
In 2018, the Royal Commission looked into the supposed misconduct in the financial sector.
The federal government’s acceptance of the 76 recommendations from the Royal Commission significantly changed the industry, with many banks moving out of financial advisory services.
But while it was chaotic, it was a welcome change.
Getting good financial advice is critical because while money is not the most important thing, it could drastically affect your life.
Since the Royal Commission, financial advisors are now:
- Required to meet minimum education standards
- Mandated to reach degree equivalents (deadline is 2024)
- Pass an exam to make sure that they understand and adhere to ethical standards
- Required to be a member of professional organisations such as the Association of Financial advisers, SMSF Association, or the Financial Planning Association
In 2019, a code of ethics for financial planners and advisors was established to set the minimum standards for finance professionals to act in the best interest of their clients.
What’s the Value of Getting Financial Advice?
In a 2015 report published by the Australian Psychological Society (APS), it was revealed that 67% of Australians worry about money while 52% say money worries have affected their mental health.
The report further revealed that among those who had received financial advice, 89% believed it had provided peace of mind, and 86% thought it had provided them better control over their financial condition.
The APS report supports the notion that receiving advice helps people achieve their personal goals.
The majority of the survey participants said they sought advice because of changes in their lives (e.g. marriage, saving for retirement or starting a business) or a trigger event (divorce or sudden loss of partner).
Four in five respondents were able to reach their goals with the help of financial advice.
And because money issues can also affect relationships, receiving sound financial advice indirectly helps people maintain healthy connections with their family and friends.
But of course, success is not guaranteed.
While hiring a financial advisor can increase your chance to achieve your financial goals, it will not happen instantly.
You need to find a qualified advisor who can create a workable financial plan that brings together different aspects of your financial life, from debt management, investments, developing a retirement plan, and risk management.
Steps for Finding a Financial Advisor
With the brief overview presented about the effects of the Royal Commission and the findings presented by the APS report, you are probably wondering where to get financial advice.
Here are the steps to help you find a financial advisor in Australia:
1. Choose a licenced advisor.
The minimum requirement to provide personal finance advice is a licence from the Australian Financial Services (AFS).
To check if your financial advisor or wealth manager is duly licenced, you may visit the Financial Advisers Register published by Moneysmart.
2. Identify your financial needs.
While your financial adviser can help you identify your actual financial needs, it will help a lot if, before getting advice, you already know what you want.
This depends on your current situation, personal and financial goals, and how much money you have.
3. Select the right advice for you
You may choose to seek personal or general financial advice from an advisor, depending on your needs.
If you need an advisor’s opinion or recommendation about a specific product such as insurance or investment, you can seek general financial advice.
Remember, general advice won’t consider your situation or goals and how it could affect you personally.
Meanwhile, personal financial advice is customised to your personal situation and financial goals.
Your advisor can help you with simple financial concerns such as choosing a loan to consolidate your debt or draft comprehensive financial advice such as retirement planning.
Some advisors also offer ongoing advice to check and review your plans regularly.
4. Meet several advisors before you choose
Most advisors will not charge you for an initial consultation, which makes it easy for you to meet several advisors so you can compare their offers.
Here are some questions to ask your financial or investment advisor during your first meeting:
- What are your specialisations?
- Who are your clients?
- What fees do I need to pay, and how often?
- What information do you need to provide advice?
- How many years have you been working as a financial advisor?
- Why did you become a financial advisor?
- What changes have you made due to Covid-19?
- What is your investment strategy?
- Who do you work for?
- What commissions do you receive from a financial product that you recommend?
- What’s the exit plan if I want to end my contract with you?
A good financial advisor will have the patience to answer your questions. If your potential advisor holds back vital information, especially on commission and fees, it’s a red flag.
What about Robo Advisors?
As the term suggests, robo advice refers to automated financial advice that you can get online.
Using online platforms, you can enter your details, then a computer algorithm (aka robo) will generate advice.
With the rise of financial technology or fintech, Robo advice has become popular in Australia and is now seen as a cheaper and faster alternative to financial advisors.
However, it has some restrictions and challenges.
Many Robo advisors offer limited services because an algorithm may not understand your goals and objectives.
For example, a Robo advisor may not understand that you need to update your life insurance because you are about to welcome a new child into the family.
Also, a computer may not answer complex questions, and it can’t provide advice about complex financial concerns.
The cost of getting financial advice
The cost of hiring financial advice varies depending on the advisor and the type of advice you need.
Understanding the cost is crucial so you can decide if paying for advice is suitable for you.
In meeting your potential advisor, you should ask for their Financial Services Guide (FSG). This document contains the services they provide and the corresponding fees.
You can use the FSG to compare the fees between different advisors.
The way advisors are paid may affect the advice they provide.
For instance, if they receive a commission for selling a product such as insurance, they will recommend the product.
However, if they are paid a percentage of your investment growth, they will perform better to increase your wealth.
Meanwhile, some advisors are fee-based because they charge an hourly rate, ongoing financial advice fee, or fee for service such as the cost of preparing an estate plan.
Australian Financial Advisors – Worth The Pay?
As the APS report suggests, many Australians seeking financial advice had received a value that helped their lives.
It is valuable for people who need direction during life transitions such as retirement, divorce, starting a business, or losing money during the pandemic.
It is worth paying for financial advice if you are looking for certainty and peace of mind.
What’s your opinion on getting financial advice? Would you hire a professional to guide you in your financial decisions and increase your chance of achieving your financial or personal goals? Let us know in the comments below!