Seeking financial advice can be a daunting endeavour. With more than 80% of Australians without financial advice, and 45% of the adult population calculated to be financially illiterate, there is proof that work needs to be done to help more people get help with their personal finances. This article aims at those who had never sought financial advice before and were wondering how to do it, and what to expect from the experience.
Firstly, a distinction must be made between general and personal advice. General advice is usually what you find online, or from a helpline of a product provider, but stops, and becomes personal advice once you have provided information about your personal circumstances which is then incorporated into the advice. Obviously, the outcome of meeting with a financial adviser in which you discuss your situation is certainly personal advice, and has a number of key requirements that I will detail below.
Seeking a financial adviser
Seeking a financial adviser is not a simple exercise, several factors come into play here. A conveniently located office is appealing, but do not forget that with the rise of virtual methods now offered (and often encouraged) by advisers, you can now search a much broader area.
Usually, a recommendation from a friend or family member can be a good start, but remember to consider your ‘age and stage’ as well, to ensure a good fit for your demographic.
Crucially, whoever you decide to try, look them up individually on the financial adviser’s register on ASIC’s Moneysmart website. This shows some of their qualifications and their licence status. The MoneySmart website also provides a useful and quite detailed checklist for choosing an adviser. A simple web search to ensure that they have not crossed the law at some point is not a bad idea either.
Once you are satisfied that the adviser/firm is what you might be looking for, reach out and book some time for an initial meeting. Allow an hour or more, depending on the breadth of content you would like to cover.
Below I cover off on some of the steps to expect in a typical financial advice process but keep in mind that advisers, like most professionals, have their own unique ways of collecting, processing and implementing the services they offer to you.
What to expect in an initial meeting
As you would expect, an initial meeting encompasses several major components for an adviser to properly assess your situation and investigate the work that needs to be done. An initial appointment may be one or more meetings, once again depending on the nature of the issue at hand and the information that needs to be collected and reflected upon.
It is also an excellent opportunity for you to determine whether you feel that engaging this adviser will work for you. Skillsets and experience are fantastic, but that is not all that may be involved in future interactions. Demeanour and personality, including their ability to explain and inform you of potentially complex themes, are very important to ensure that you both fully understand and are confident in going forward with their recommendations.
Often people seek financial advice with one clear objective in mind, which is a great start, but then through the explanation of other areas of their financial (and personal) life will uncover additional scopes of work, or find new areas that influence the original objective. Therefore being open and honest about your situation is crucial to ensure that recommendations do not conflict with something unknown to the adviser.
A simple example may be that you have had a significant health issue in the past that could affect your ability to apply for new insurance going forward. Good advisers will help guide the fact-finding to ensure that relevant areas are discussed.
Depending on what advice components are required, an adviser will need to summarise your current financial position using a ‘fact find’ document. In it, current financial holdings, loans, superannuation and investment accounts may need to be detailed for review. This may also include doing investment risk profiling to ascertain your appetite for volatility and time frames for objectives, and an insurance needs profile.
Some advisers offer this document for you to complete before the initial meeting. It serves the meeting well if you can take the time to fill it in. At the very least, it can help you take a quick stocktake of your current position and really saves time in the meeting for the adviser to focus on your goals and objectives.
Scoping of work and pricing
Once your objectives and current position have been ascertained, the financial adviser will seek to step through the work that needs to be done. This is often where the connectivity between your original objective and other areas emerges in order to avoid conflict if solved in isolation.
You may find that there are high and low priority areas. The ability to scope out topics not immediately required to be addressed can be an excellent place to verify the advice is delivering on expectations. This type of advice, which allows less vital areas to be dealt with at a later date, is called episodal or staged advice.
Finally, the work involved is priced, both for the preparation of the advice and any potential implementation that may be required. There may also be mention of any ongoing fee
arrangements which could be necessary to ensure that the strategy remains appropriate.
As with all professional services, fees are to be expected. In the past, product payments and trail commissions have meant that the upfront cost of advice could be subsidized (or provided free!). Of course, this also meant the likelihood of conflicted advice, that wasn’t in your best interests, was high. As the adage goes ‘you get what you pay for’. Whilst fees are higher now, at least you can be sure that the advice is benefiting the right person.
There are several ways that advisers will determine fees, with ‘fee for service’ now more prevalent. Expect a price for the initial advice, potentially an idea of follow up advice (if there are additional elements later on) and some discussion on the ongoing cost of maintaining the strategy.
Whichever pricing method the adviser has chosen, it needs to be explained to demonstrate the value and give you the confidence to proceed.
Financial Advice Strategy
Most pieces of financial advice will have a strategy. This is one of the crucial parts of the advice process for several reasons. In many cases, you will have sought advice because the problem you would like to solve, or the objective you want to reach, is difficult to see simply. Therefore the strategy proposed helps to provide the pathway to success. It also gives you an ability to really reflect on whether the recommended route is workable for you.
Once the scope of the advice is agreed upon, the real work begins for an adviser. Suitable strategies will need to be considered, and the research and selection of appropriate financial products as necessary to set you on the path to achieving your objectives.
Often in the formation of this strategy, some advisers will call an interim meeting to discuss their initial thoughts to help zero in on the most relevant pathway for you to take and ensure that this aligns with your other plans. An example may be projecting your income for an extended period, but instead, you are considering a career change or a return back to education. This may mean that a couple of scenarios need to be calculated and may help give you confidence in these future plans. Either way, these meetings are essential!
Research of products and services
Time needs to be taken to review your current financial products and holdings and the research of other options available in the market to help meet your objectives. You should also expect that consideration of other alternatives have been documented with reasoning as to why they were deemed inappropriate for your circumstances.
Financial modelling is often used to project investment returns and insurance requirements and should be clearly explained to you. One note is to ensure that realistic return rates are used, particularly now when expected returns across all asset classes are significantly lower than in the past. One way to do this is to ask for historical average returns, then discuss the potential for lower returns going forward, and ask for an additional scenario to be modelled that reflects this expectation.
Benefits / Limitations
When recommending new products, mainly when replacing existing ones, there need to be clear and concise explanations of any benefits gained and features lost, including additional risks, in establishing new accounts and products.
Presentation of financial advice
This work is then recorded and explained in a comprehensive document called a ‘Statement of Advice’.
In addition to the recommendations, take note that the summary of your present circumstances has been reflected accurately to ensure that the following advice is still suitable. If you feel that something has been missed or has changed, you should immediately flag this with your adviser.
It is considered good practice to also explain how the recommendations and advice are in your best interests. This can give you comfort that the primary objective of the advice is to leave you in a better position if you follow the recommendation.
This advice is then presented to you at a subsequent meeting. Once again, the presentation method can vary from adviser to adviser, with some preferring PowerPoint slides, diagrams or even a video presentation. Still, all personal advice needs to have a Statement of Advice accompanying it.
Implementation of financial advice
Now you have the advice on hand and the pathway in place, all you need to do is implement it! Of course, the adviser can help with this. There may be an additional fee, or it could be included in the advice cost for forming the Statement of Advice.
Depending on your own experiences and comfort level in implementing the strategy and setting up the products or services, it is usually advisable to allow the adviser to implement the recommendations.
Ongoing service agreements
Again, depending on the proposed strategy’s length and complexity, the recommendation of some form of ongoing service agreement may be appropriate. This may take the form of a periodic review, perhaps annually or on an ad hoc basis as milestones in the strategy are reached.
An exciting development in ongoing service arrangements, that are becoming more prevalent, is the ability to scope and personalize the level of continuing service you would like, and subsequently pay for, from the adviser. One option available is an administration subscription that allows you access to the adviser and administrative elements that may be required along the way (changing bank accounts, addresses, married names etc.) but stops before the inclusion of personal advice.
This can be an effective way of retaining the adviser’s services to a degree, whilst keeping annual costs down and still providing the ability to seek advice when required for a fee. This reactive instead of proactive approach gives you more control if you prefer it that way, whilst still ensuring that the recommended solution is monitored for you.
Whilst just a brief summation of how to seek and what to expect from a financial advice experience, I hope that this has provided some comfort in the knowledge of the process, and gives you the confidence to reach out to the financial advice community for help.
Seeking help with your financial future is a challenging task. It involves fees but can provide a lot of value, comfort and confidence that you have had professional service in pursuing your personal goals and objectives.
Tim Fuller is Head of Advice at Nucleus Wealth.
The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Tim Fuller is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Nucleus Advice Pty Ltd – AFSL 515796.