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Financial advisers: Friend or foe?


Financial adviser Charlie Viola

Financial adviser Charlie Viola explains exactly what a financial adviser does and why you just might need one.

You service your car regularly, top up the oil and check the water, all to avoid an expensive breakdown or engine overhaul. Similarly, ensuring regular upkeep and active involvement in your financial life should be no different. Just like you need an experienced mechanic to service your car, financial advisers can serve as mechanics for your financial life.

What does a financial adviser do?

A good financial adviser can help you work towards your financial goals, set you on a clear pathway to meet personal financial objectives and ensure you're protected should unforeseen circumstances arise. Additionally, they should be considered a trusted friend and confidant.

However, recently, the tide turned when Commissioner Hayne handed down his findings from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. He included the financial planning industry, in some ways, for good reason. This industry was once built on product sales and subsidised by product fees, muddying the water of what constituted advice and what was considered sales, resulting, at times, in poor advice, inappropriate product sales and bad outcomes for some clients.

So, at a time when consumer confidence in the finance industry is low, many people might consider an adviser not only a foe but an expensive risk. How can you be comfortable that your best interests are being met when you engage a financial adviser?

The good news is that most advisers are doing the right thing, so there are really two main things you need to consider: Do you need one and, if you do, how do you know you've found the right one?

Do I even need one?

Arguably, everyone can benefit from seeing an adviser. They can ensure that your financial decisions are deliberate, not simply happenstance, and they can help you make choices early in your financial life that can end up paying dividends. The right adviser can provide comfort and certainty that your financial goals can be met, but can still allow you to make lifestyle and financial decisions that suit you. Even better they can offer protection if life goes a bit pear-shaped.

Listen to Charlie Viola talk about what a financial adviser does

Do you need to have a lot of money to see a financial adviser?

A common misconception with financial advice is that you need to be earning a decent salary before it's worth seeing an adviser. This is wrong. If you have started your working life, you are paying taxes and also receiving superannuation payments. For most of us, super will be the biggest investment we make over our working lives, but too often people treat it as a bottom draw asset.

Equal to super, particularly for young people wanting to get ahead, is the question of property ownership. Do I buy? Do I rent? An adviser can help you work through your real objectives and model out what your financial life might look like in 5-10 years. They can also help you organise the right loans.

For people who feel like their financial goals have in fact been met and feel that they have "enough money", then an adviser's job is to overlay that knowledge and experience by ensuring those assets are well managed and protected going forward.

For people in the wealth accumulation stage of their life, ensuring assets are protected in case of illness or injury and understanding how superannuation works are the top priorities. An adviser will help you understand whether it's better to pay off your mortgage or make super contributions and explore opportunities such as borrowing to invest.

These are all good reasons to see an adviser and create a quality, long-term relationship that is aimed at you achieving financial independence.

How do I find a good financial adviser that I can trust?

The best financial advisers ask questions and actively listen to their clients, no matter whether they are a senior executive, a young family trying to get ahead, a retired couple with their final nest egg or a small business person who has finally sold their lifetime of work to receive their retirement capital. Everyone will have their own goals and their own prejudices, and it is understanding these goals and concerns that is key.

Reputation over brand

I don't believe you need to find an independent adviser or someone from a brand you trust. You need to find someone who you can build a rapport with, and with whom you can articulate what you want. A good place to start is asking friends and family for recommendations, as the journey with your adviser should be a long one.

The basics versus the best

Financial advice in Australia should be simple. We only have four tax structures that an individual can use to build their wealth. Every adviser should calculate how much of your money can go into superannuation and how much tax should be paid. They should also profile their clients to assess risk and advise on the right levels of insurance.

However, the absolute best advisers ensure that all conversations, all advice and all strategies relate back to your personal objectives and how best to meet them.

It's all about the relationship

When you are choosing an adviser, you need to make sure they are a good fit for you and your communication style as this should be a long and solid relationship. Look for someone who is willing to put in a lot of time upfront to get to know you and your goals.

Red flags to look out for are someone who doesn't want to work through the full advice process with you and/or someone who gives you advice that seems to rely on large borrowings or specific products.

How much will it cost me?

Often there is a cost, but fees are not the be-all and end-all. The key is to ensure that this arrangement is about value. If you are getting value, the fee should be secondary. Fees should range from $XXX to $XXX (TBC - KB).

A typical fee structure will include preliminary advice and clear ongoing advisory arrangements which should look like this:

A fee for the initial piece of advice (Statement of Advice)

  • This is the process and the document that ensures that your needs are understood, and it sets out what strategies will be used going forward.
  • Make sure that what's in this document rings true for you, your current position and what your goals are.
  • This should cost roughly between $1500 - $5000

Ongoing advisory and investment management fee

  • This the fee for your adviser remaining up-to-date with your situation and meeting with you as agreed, and it ensures that your portfolio and plan are up-to-date and in line with your objectives.
  • This should cost roughly 1% of your invested money. Advisers may impose a minimum which will often be about $2,500 to $4,000 per annum. For people with bigger portfolios, the fees may be fixed, or a fee for service arrangement will be used. Depending on the services and funds invested, fees for service will generally be between $4,000 and $20,000 per annum. (but may end up much higher for much bigger portfolios).

Other fees

  • Depending on who you see and what strategies are in place, there might be some extra fees for products, loans and tax returns. Ask your adviser to be clear on what all the fees are and what they receive from them.

The way forward

Financial advice has gone through a lot of changes in the past few years. Thanks to the significant increase in scrutiny on the industry, the introduction of strict regulatory requirements around fee and service disclosures and the new education arrangements, you should have confidence that if you choose to get professional financial advice, it will be about your adviser meeting your goals and protecting your wealth, not the other way around.

Finally, it's important to remember that this is your money and your financial life, so if the advice you receive doesn't feel right or if you don't understand it, it's time to seek an alternative.

Charlie Viola is a wealth management partner at Pitcher Partners Sydney and was named Australia's best financial adviser in 2018.

Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder have taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.

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