With the federal government moving to rush through changes to the Future of Financial Advice (FOFA) reforms, investors are right to take notice and ask whether they have been fairly represented, but this is not the only issue you need to be concerned about.
Firstly, I believe in a fair financial system, one that allows advisor businesses to grow, with sufficient protections in place for the consumer. I also see a danger in over-regulation, as we don’t want to be seen as a ‘nanny state’.
That said, I do have concerns about protections being removed that could affect the financially illiterate.
Good financial advisors build lifelong relationships with their clients through being transparent and helping to educate them. Regulations don’t create these sorts of relationships; the right business model and culture will.
If you are canvassing for a financial advisor that you can be with for the long-haul, note this: often the quality of the answers you receive are only as good as the questions you ask.
You need to be prepared prior to talking with your potential advisor. To do this you first need to ask yourself many questions:
- Why do I want an advisor?
- What am I trying to achieve by using an advisor?
- What sort of investments and level of risk am I comfortable with?
- What sort of returns am I looking for?
- What timeframe am I looking at for my investment to grow?
The answers to these questions will assist you in preparing to select an appropriate advisor, and will also save time and money in not having to deal with someone who does not have the knowledge in the areas you want to invest in, such as direct property and shares.
More importantly, the answers to those questions will enable you to go into your meeting properly prepared.
I suggest that the best way to find an advisor is through word-of-mouth, as you will know more about them and why you might use them prior to your meeting. Important questions to ask a potential financial advisor are:
- How long have they been in business, and what are their qualifications and areas of expertise?
- What is their approach or philosophy to investing?
- What is their fee structure?
- If you agree to become a new client, what is their process?
- Will the first meeting be free or is it fee-based, and what is provided?
- If you decide to switch advisors and/or investments can you do that? What is the process? And are any fees involved?
Take a list of questions to your meeting with your advisor and make sure your questions are answered to your satisfaction. If you don’t understand the answers keep asking for clarification until you understand.
Dos and don’ts when seeking a financial advisor
Don’t chop and change Any plan needs time to work. But this can be an issue if, for example, you have a falling out with your advisor. You don’t want to jump from one person or company to the next as this is a sure-fire way to never get ahead. This can be even more of an issue for those later in life as you have less time.
Do read everything Including the fine print, so you understand what you are investing in. If you don’t understand your risks in a particular asset class then why invest in it? Remember what happened to the Storm Financial customers.
Do take a regular interest in what your advisor is doing Remember it’s your money and your future that they are dealing with.
Do be wary of free advice Nothing is free so always check what fees might be involved from the outset.
Don’t place all of your nest egg into one investment And, in addition to multiple investments, you might decide to use more than one advisor.