Tips for Getting the Most Out of Your Financial Advisor

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Tips for Getting the Most Out of Your Financial Advisor

Tips for Getting the Most Out of Your Financial Advisor

When it comes to finances, many people feel like they need help. This is where financial advisors come in. They are there to offer guidance and advice when it comes to investments, retirement planning, and more. 

However, working with a financial advisor does not come cheap. In this article, we will take a look at some tips to help you get the most value for your money when working with a financial advisor.

1. Conduct Research

This is essential. Create a shortlist of possible advisers based on referrals and testimonials from individuals you trust. Most will provide a free initial consultation, so take advantage of that to assess them.

Ask a lot of questions. They must:

  • Be ready to explain and illustrate their track record, credentials, and the quality of services provided.
  • They will ask you numerous questions in order to better understand your financial requirements.

Outline their prices clearly, both verbally and in writing, and provide you with their FSG.

Yes, it’s a pain, but shop about and don’t always go with the lowest option. Remember the old adage, “you get what you pay for,” within reason. You don’t want to be paying for a showy car driven by an advisor.

Also, keep in mind that, while price is important, it is not the sole consideration. Look for a financial advisor you feel comfortable with and who “speaks your language.”

2. Bargain

Financial advising is a highly competitive sector. Be prepared to negotiate fees to get a fair deal, especially if you have a lot of money. Because so-called high net worth individuals are highly valued, make sure you are also getting good value for your money.

3. Deductions for taxes

Only financial advice that is directly related to the production of assessable income is tax deductible. Fees for actively advising on/managing an investment portfolio that creates assessable client revenue are examples.

Actively advising on and managing an SMSF portfolio with assessable income.

The expenses listed below are not tax deductible:

4. Examine your fee statements

The Financial Sector, The Royal Commission (which was announced in early 2019) heard some surprising admissions from some of Australia’s biggest financial institutions that some of their advisors were guilty of billing clients for advice that they never got. An ASIC inquiry discovered that over 330,000 customers may have been charged more than $200 million for continuous financial advice that they never received. Commonwealth Bank, ANZ, NAB, AMP, and Westpac were among the financial firms involved.

This emphasizes the need of double-checking the fee disclosure documents that financial advisors/planners are legally required to supply you with if you have an ongoing relationship with them. Check that you’re getting what you’re paying for!

The recent Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry focused heavily on financial advice. The final study included ten proposals that might drastically alter the way financial advice is offered, such as prohibiting grandfathered commissions, yearly fee renewals, and the disclosure of lack of independence. 

Both the Coalition and Labor have backed them, however they will not become legislation for some time due to delays created by the 2019 Federal Election and, most recently, the 2020 coronavirus.

ASIC issued a consultation paper in March 2020 on its proposed annual advice fees, superannuation fee consent, and ‘lack of independence’ disclosure amendments, inviting advisors to offer comment before new legislation is adopted.

Tips for Getting the Most Out of Your Financial Advisor

Insist on Fee Disclosure

Unfortunately, making an appointment is the only definite method to find out what financial advisors in your area charge. When you first meet with a financial advisor, you should be given a Financial Services Guide (FSG). It must include details on how they will be compensated for their advice. Their fees may include any or all of the following:

Service charges: These are flat costs for a variety of services, such as the adviser’s consultation time, the production of a statement of advice (SOA), the implementation of a SOA, or the fee for an annual review.

Investment portfolio percentage fees based on a percentage of the value of your investment portfolio: If you have a high net worth and are being charged a percentage fee, proceed with caution. Even if the percentage fee is low, the cash amount could be enormous and unjustifiable if your financial circumstances are not particularly complicated.

Fees dependent on performance: This is a performance-based advisory fee depending on the performance of your investment portfolio. If your advised investments outperform, the adviser can charge a portion of the excess performance over a predetermined benchmark.

Commissions: An adviser may be compensated for products that they propose and sell. However, under the Future of Financial Advice (FOFA) legislation revisions, commissions on new superannuation plans and investments were prohibited as of July 1, 2013. Legacy commissions on products sold before to this date might still be charged by advisers. 

In addition, financial advisors are required by law to disclose their fees in the documents listed below.

Statement of Advice (SOA)

This is a document that a financial consultant must provide you with when giving you advice. It must specify any compensation or benefits they will receive if you follow their advice.

Product Disclosure Statement (PDS)

Before you commit to a specific financial product, an adviser must provide you with the PDS. Any relevant fees must be specified in the PDS.

Annual Fee Disclosure Statement

If you agree to get into an ongoing relationship with a financial adviser, they must supply you with this paper. This document must include the following information: 

  1. The costs you were charged by the adviser or planner in the previous 12 months
  2. The assistance you received
  3. The services to which you were entitled.

The FOFA regulations require an adviser to formally renew any ongoing advice agreements with you every two years. Further, you have the right to cancel the agreement at any time.

Final Thoughts

Whether you are accumulating wealth, maximizing an inheritance, or planning your retirement income, the financial decisions you make can have a significant impact on your wealth and well-being. With so much at stake, it is often prudent to obtain professional financial advisors in order to attain your objectives. If you do, take reasonable steps to ensure that you receive high-quality counsel at the best possible price.