Before Seeking Financial Advice

Before seeking Financial Advise - Read this first!

Essential information you should know before seeking the high-cost services of a financial adviser or financial planner.

The financial advice services provided by Financial Advisers and Financial Planners are not cheap. Unfortunately, they are lumbered with compliance and other regulatory overheads, so need to cover these costs of doing business. To get the best value from your adviser engagement here is some information regarding what you can expect and how you can leverage the engagement to your advantage.

Please note: Some advisers may not charge fees for their advice. Insurance brokers for example, receive commission for the products you purchase through them. You are entitled to understand how they are remunerated, so if they don't tell you then don't be afraid to ask.

Picture of a "Financial Advice" stand

The Financial Advice Process

Financial advisers and financial planners (hereafter referred to as ‘advisers’) usually have to follow a set financial advice process for compliance purposes. Usually a six-step process as outlined below. No matter the process followed though, the adviser has a duty of care obligation and is to operate with your best interests to the fore. There is normally a code of conduct that they must follow. If at any stage in the process you do not feel comfortable with the engagement you have the right to raise your issues with the adviser and end the relationship if need be.

1. Establishing the Relationship

Before the adviser can offer their financial advice services they will need to understand what you require of them. The more specific you can be in outlining the services you need from the adviser the better. For example, if you only want the adviser to provide investment advice and not worry about risk management (i.e insurances), estate planning, and taxation then ensure these are clearly stated as exclusions. A loose scope of service may mean you pay for services you didn’t expect and don’t need. Until you agree with the scope of service in the client agreement or letter of engagement they provide, you are not obligated to pay any money for the adviser’s services. I would recommend you limit the scope of service to just completing up to the Statement of Advice stage (step 4 below) and seek a separate scope of service for the implementation phase (step 5 below).

During this stage of the process the adviser will ask you to sign a disclosure statement. While it may just seem like an administrative process, please do take the time to read and understand this document.

2. Gathering Data

The next step in the financial advice process is for the adviser to understand your current financial situation, what you are wanting to achieve (your Financial Goals), and what your Risk Profile is. The more upfront work you can do to prepare for this the more focused the engagement will be (see the worksheet resources we have provided). It will allow the adviser to provide you with better advice, and will save time so you benefit sooner.

3. Analysis

Once you have provided the necessary information, the adviser will go away and do their analysis, explore various options and draft a Statement of Advice. The clearer you are in setting the scope of service in step 1 and the better the data you provide in step 2 then the better the advice is likely to be. The more work you put in will save the adviser time in their analysis and developing advice, which should save you in the cost of their services.

4. Statement of Advice

The adviser will then present their advice to you. It is important that the adviser not only provides the advice, but also explains why it is appropriate for you. They should clearly articulate any risks surrounding the advice provided.

The greater your financial literacy and investing knowledge the more you will understand the advice provided. You will also be able to provide appropriate feedback and ask the adviser to reconsider some of their advice. You do not have to accept their Statement of Advice and can ask them to improve it.

During this stage of the financial advice process the adviser will ask you to sign another disclosure statement. Please do take the time to read and understand this document. It will disclose any conflict of interest the adviser has and what fees they may be entitled to if you follow their advice.

5. Implementation

Once you agree with the Statement of Advice, the adviser will provide you with an implementation plan. Make sure it clearly outlines what the adviser will do (their responsibilities) and what you need to do (your responsibilities). If you limited the initial scope of service to just completing up to the Statement of Advice stage (step 4 above) then you can end the engagement at this stage and implement the advice yourself.

If you decide to implement the advice yourself, you will be responsible from that point onward. You will need to monitor the implementation and ongoing performance yourself. If you return to the adviser later for further advice then you may need to re-engage with the financial advice process from step 1 above.

If you wish to utilise the adviser to assist with implementing the advice and monitoring its performance, you should seek a separate scope of service for this.

6. Monitor and Review

To ensure ongoing validity of the advice provided, and to monitor performance against expectations, regular reviews of the advice provided and the performance of what has been implemented should be undertaken. This should be done at least annually, or whenever your personal situation substantially changes.

Please note: An adviser who is remunerated through commissions and doesn't charge you with fees is likely to receive ongoing commission (called ‘trails’) for as long as you keep using the product they have sold you. The trails are given for the adviser to monitor your plan’s performance and undertake regular reviews. These are at no cost to you so you should take advantage of them.

Final note: Do not be afraid to haggle with your adviser. If you are suitably prepared and knowledgeable, which saves the adviser time and effort, then you should be able to negotiate more favourable fees from them. Or, if the adviser’s remuneration is commission based then you may be able to negotiate lower premium costs for the products they provide.

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