- Learn what to look for in a financial adviser.
- Check their licences, qualifications and training.
- Consider common fee structures, potential conflicts of interest and their online ratings.
Unfortunately, financial advisers don’t always act in their client’s best interests – something being made painfully clear in the ongoing Royal Commission.
To help you identify professional, trustworthy financial planners, we’ve put together the following guide.
Before you sit down with an adviser
Check their licence
First, check if your adviser is properly licensed to provide advice, or is an authorised representative of a financial services licence holder by searching for their name on the financial
This register will give you the:
• status of your adviser (you want to see “current” listed)
• name and number of the licence holder who employs or authorises them to provide advice.
If you find your adviser is not operating under a licence, look for one that does.
Check for bad behaviour
On the register, you can also check to see if your adviser has done anything wrong. This could include an ASIC banning order disqualifying an adviser from providing advice for a brief period or perhaps for life.
Lodging an inquiry with the Financial Planning Association of Australia or Association of Financial Advisers may show whether the adviser has been in trouble. However, as the royal commission has shown, this step may not reveal all instances of wrong-doing.
Qualifications and training
On the register you can also check the qualifications and training of your financial adviser. It may seem obvious that someone advising you on your life savings should have the relevant bachelor’s degree, the industry does not insist on it. To become a financial adviser a person must complete a diploma of financial planning, or a course that’s been deemed equivalent. As set out in Regulatory Guide 146, the diploma typically involves an assessment, as well as open book exams for each financial product they offer advice on. Some critics of financial planning note that the courses lack rigour.
However, stricter education standards are in the pipeline, and by 2024 all existing financial advisers must complete (at a minimum) an approved bachelor’s degree and pass a code of ethics course to retain their licence. From next year, entrants must complete an ethics exam, have an approved bachelor’s degree, and complete a “professional year” to qualify for a licence.
“We estimate that there are around 8,000 advisers who will leave the industry because they don’t want to continue studying,” says Adrian Raftery, Deakin Business School associate professor of superannuation, and the course director for financial planning.
“If you find a good adviser that you’re happy with but they only have diploma of financial planning that’s fine for now, but I’d be concerned about whether they’d be around in six years from now. You should be selecting a financial adviser who you trust to manage your money for life.”
Raftery says it’s best to ask your financial adviser whether or not they intend to meet the new requirements.
Check ratings online
You wouldn’t book at
Former financial adviser, fintech investor and entrepreneur Clayton Daniel says checking customer reviews to get a client’s perspective is crucial.
“The website really has one goal: to help people make better decisions about financial advisers,” Daniel says. “I would be more inclined to choose an adviser who is consumer focused, public facing, values full transparency.”
Meeting an adviser
Ask about conflicts
Whether or not an adviser has conflicts of interest behind the advice they give will have an impact on your financial future. As heard during the royal commission, Fair Work commissioner Donna McKenna was advised by celebrity financial adviser Sam Henderson to roll her existing superannuation into an SMSF so she could buy an investment property. Had she taken that advice, she would have lost $500,000 in benefits.
“I thought if I went to an independently owned financial planning firm that I wouldn’t be subjected to the product flogging of the type associated with the big banks, and yet all I’m being flogged is Henderson Maxwell’s own products and services,” McKenna told the commission.
To determine whether your adviser is receiving commissions, Daniel recommends asking your adviser one key question: are you paid in any way beyond the fee I’m paying you to provide me advice?
Daniel adds that you can check if an
Ask about fees
Another question to ask in your initial consultation is how your adviser is paid. Broadly speaking, advisers are paid via four fee structures:
- Commissions. An upfront commission paid for placing a client into a product, as well as trail commissions as long as the client remains invested in the fund.
fee. Payment based on beating a pre-arranged performance hurdle.
- Flat fee-for-service. Payment for a set item of work completed. For example, a statement of advice.
- Percentage of AUM. A charge based on the percentage of assets under management that the adviser is managing for you. The more money you have with an adviser, the higher the fee will be.
Each fee structure has its pros and cons. For example, while you’ll have no out of pocket expenses for the advice in a commission structure, it encourages a sales-driven mentality and will probably cost you more.
In summary, you should check your potential financial adviser is licensed; is subject to any disciplinary action or banning orders; and is suitably qualified.
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© Morningstar Investment Management Australian Limited (‘Morningstar’) and any related bodies corporate that are involved in the document’s creation. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third-party providers accept responsibility for any inaccuracy or for investment decisions by any person on the basis of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment. Any general advice has been prepared without reference to your investment objectives, financial situation or needs. You should consider the advice in light of these matters and if applicable, the relevant disclosure document before making any decision to invest. Refer to our Financial Services Guide for more information.