Recently we’ve seen the financial planning and advice industry getting a bad rap at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The title of the Royal Commission itself is telling. The focus of the investigation is wrongdoings in the industry, which means we’re not going to be regaled with stories of families who’ve been guided into good investments that have helped them educate their children, pay off their mortgage or achieve a secure and prosperous retirement.

Whilst the Royal Commission does have merit as it looks to rectify what has gone wrong, it’s important to keep the somewhat hysterical media coverage in perspective because there’s a lot that goes right when it comes to financial services.

Unfortunately in any industry there will always be some members who are careless, incompetent, or worse, be it accountants, teachers, lawyers or others. However, it doesn’t mean this is true for all members, or even any more than a small minority.

So when it comes to the financial advice industry it’s important to remember: 

“A few bad apples is no reason to visit the orchard.” (Lauren Weisberger)

Given the Royal Commission and the negativity surrounding financial advisers, this month I’m going to discuss why financial advice is important, how to select the right advisor, what you need to ask and how to work with your advisor to get the best results.

The importance of financial advice

The worst possible outcome from the current Royal Commission would be a loss of public confidence in the financial services sector as a whole. Financial advisors play an important role in our lives, particularly for those of us who are self-employed and running our own businesses.

Most of us possess neither the specialist knowledge nor the time to make the careful decisions needed to enable us to put the hard-earned returns from our businesses to the best long-term use. This could be anything from achieving certain lifestyle goals such as travelling or funding your children’s education through to paying off a loan quickly or achieving a secure retirement.

So how do you cut through the negative noise and find the right advisor for you?

Finding the right advisor for you

Finding a financial advisor who suits you is the same as any other advisor – the most reliable guide is a good recommendation from someone else whose judgement you respect. So talk to your family, your friends, your business colleagues or your other advisors (such as your accountant or lawyer) for recommendations.

Once you have received some recommendations it’s important to do your own research as not every financial advisor is licensed to provide advice on the full spectrum of investments, self-managed super funds, insurance, estate planning and tax.

To find out whether the proposed financial advisor offers the services you seek, you need to review their Financial Services Guide (FSG), which can be found on their website (or if not, you can contact them to request a copy).

Once you have reviewed the FSG, refine the advisors you’re considering down to 2 or 3 and organise an initial meeting with them (this is usually free). It’s helpful to meet before you make your final decision as you can gauge whether you feel comfortable with them and see if their approach to investing aligns with your goals, interests and beliefs.

The first meeting with your financial advisor

This meeting not only enables you to see if you feel comfortable with the advisor but it also lets you ask any questions that may not have been answered in the FSG.

Conversely, you should find that during this initial meeting, the financial advisor is using the time to ask about your personal circumstances and explore your needs, goals and risk profile.

Ideally, you will have a good understanding of their fees and services at the end of the first meeting and be confident the financial advisor understands your financial situation. However if you’re feeling pressured, uncomfortable or overwhelmed with a lot of jargon-talk, then perhaps that financial advisor is not the right one for you.

It’s prudent to remember you get what you pay for 

Regardless of who you choose, it’s important to appreciate they invest a lot of time and expertise into meeting with clients, understanding their situation, and then structuring a long term financial plan suitable to their unique situation. All time and expertise that needs to be paid for.

Traditionally, advisors have been largely remunerated via commissions paid to them by the providers of the financial products into which the client’s funds were invested – and that practice is at the heart of most of the misconduct that the Royal Commission is looking at.

However, with this practice increasingly being in the past now, financial advisors largely charge on a fee-for-service basis. So, expect to pay your financial advisor for the advice they give you – and remember, you get what you pay for. 


Don’t hesitate to ask questions

It’s important to talk to your financial advisor about their recommendations and don’t be afraid to challenge them if you feel the need. Good advisors are not frightened of explaining and justifying their advice.

I frequently hear that “ordinary people” are bamboozled by the complexities of financial advice, and are not able to assess whether it is good or not, but I do not think that is true. Sure, the rules surrounding tax, superannuation and the like are confusing and often lack apparent logic. However, the much more important common sense rule still applies – if the advice you are given doesn’t make sense to you, it probably doesn’t make sense full stop!

For example, if an advisor wants you to mortgage your house in order to get in on the ground floor of a “can’t lose” technology start-up, you don’t need to be an expert to recognise this as questionable advice – so question it! Another important rule applies here – if it looks too good to be true, it probably is. Unfortunately, a number of the sad stories coming out of the Royal Commission fall into this category.

Don’t underestimate the value of good advice

Perhaps your financial advisor has devised an investment strategy that looks a bit boring and conservative to you? Or maybe you think that their recommendations are not surprising and that you could have come up with it yourself (which is something I sometimes hear!).

This is probably true if you dedicated weeks of work analysing financial accounts and reading brokers’ reports and hours on ongoing research and review. But the truth is we engage other professional advisors to share their expertise with us so it frees us up to concentrate on our core business and life in general – and financial advisors are no different. 

Where to next?

I am fortunate to count a number of financial advisors – individuals and organisations – among my clients, and have dealt with many more. Overwhelmingly, those individuals and organisations work hard and diligently to get the best outcomes for their own clients.

At the end of the day it’s about finding the financial advisor you feel most comfortable with. One that you understand and trust. Someone you are happy to divulge personal financial details and your goals with. Because a strong client-advisor relationship is the key to strong financial support and guidance that will benefit you over the long-term.

If you would like to know more or need any assistance, feel free to contact us at Antcliffe Scott, we’d be more than happy to help!

Antcliffe:Scott Lawyers