Good financial advice may be hard to find
There’s a gap between what most people expect from a financial adviser and what professional financial advisers offer. And it can come in various forms. There can be a mismatch between the value of advice and what people expect to pay. There may be misunderstandings about the scope of the advice, and the need for regular reviews to track progress.
Also keep in mind that really good financial advisers are already busy and aren’t necessarily looking for more work.
So where does this leave those who are looking for someone they can trust?
- One of the most reliable ways to seek out a good adviser is by referral. Ask your family, your friends, your work colleagues, or anyone else you respect. Where do they go for financial advice?
- Do some homework by looking at Internet sites, read the financial pages of the daily papers, listen to the news reports on radio and television. Try to understand how advisers get paid. Consider the potential bias that could be associated with advisers employed by a large superannuation fund, a bank, or a life insurance company.
- Aim to develop your ability to ask effective questions about financial matters. Asking questions is one of the best ways of developing a trusting relationship with a financial adviser.
- Prepare yourself for the first interview with an adviser by coming armed with your annual budget, a list of known outgoings such as a new car, holiday, and so on. Write down your financial goals, and list all your investments, life insurance, superannuation, and possible inheritances.
- Prioritise the main issues. A good starting point is taxation and the lodgement of your annual tax return. Taxation is at the heart of financial planning because both Income Tax and Capital Gains Tax play a vital role in determining how much money you’ll have to spend.
- Consider what risk means to you, particularly the three big risks that retirees face. These are: the risk of living too long; the risk that your money may not be well managed; and the risk of inflation (where your annual expenses rise faster than the increase in your annual income).
Trusted relationships are built over time. They involve a commitment by all parties to engage in trustworthy behaviour. There’s a lot of truth in the saying that it takes years to build trust but it can be lost overnight.
Loss of trust can come from a breach of confidentiality; a grave misunderstanding; poor communication; lack of communication; or badly timed communication. Trusted relationships can’t develop when people knowingly withhold vital information, don’t admit past failings, and act dishonestly by, for example, failing to disclose relevant data to the Australian Taxation Office.
Trust may also be destroyed when you claim to fully understand something when, in effect, you’re worried about disclosing your lack of knowledge or experience.
The best approach is to make a full and true disclosure of all of the relevant facts when you seek financial advice.
Why are so many people not seeking financial advice?
The Age newspaper published an article outlining research conducted by Investment Trends that suggests that 27% of the people surveyed thought they had insufficient funds to see a financial adviser; 20% thought that the cost of advice was too high; and 19% said they didn’t have sufficient time to devote to seeking advice.
Information is not advice. Information provides detailed data that describes what a particular investment can offer, what a particular tax or pension rule might mean, and it might include tools to assist with budgeting and simple calculations.
Financial planning takes the information that is relevant and turns it into a strategy that specifically addresses the needs of the individual or couple.
The Investment Trends research also found that most people do not want a comprehensive plan, they would prefer a piece-by-piece approach. The research found that only 8% of respondents wanted a full financial plan.
Where does that leave financial planners?
Given the findings of the research above, many advisers will only accept new clients prepared to pay for their time. There are some real issues around professional indemnity insurance for financial planners, the regulations that govern the Financial Planning profession, the professional standards that apply to the Accounting professional bodies, and Tax Agents that are regulated by the Tax Practitioners Board.
To demonstrate that the advice is given in good faith and is in the best interests of the client, advisers need to put the advice in writing (or an email). You should expect this.
As suggested, the best starting point may be to seek an adviser who can prepare your tax return, and over a period of time come to understand you as a client, your risk profile, and your investment experience. This will involve an annual fee for the service—which is how lawyers and other professionals operate. As the relationship builds your adviser can start acting as your coach and suggest that you investigate strategies that may be appropriate.
Taking the first step is much better than doing nothing.
Owen Weeks is a director and authorised representative of Lifestyle Matters Pty Ltd and a Registered Tax Agent. He is a Fellow of the Financial Planning Association, a Fellow of the Professional National Institute of Accountants and an Honorary Fellow of the Association of Superannuation Funds of Australia. He is also the co-author of Retire Bizzi.