Seven questions to ask when choosing a financial planner
When you’re choosing a financial adviser, it’s understandable that you might feel uncertain — so how do you get through that and choose someone good? The decision isn’t always straightforward. After all, you’re seeking advice because you’re not familiar with financial planning. Every adviser you talk to sounds good. So where can you find the expertise to evaluate the ‘experts’?
When you make an informed comparison, you’re much more likely to feel confident in your decision.
That’s why I’ve pulled together the most important questions — the fundamentals of good financial planning. There’s seven questions for you, drawing on my experience of 12 years in financial planning. So all you need to do is go out and compare a couple of financial planners, asking each one these questions.
1) How do you charge for your services?
Don’t just ask how much you’ll pay — ask how the financial planner’s fees are structured. How do they make money? It’s your right as a consumer to ask this question. When all the payments are on the table, it’s easier to be sure that the financial adviser is only motivated by your best interests.
Most financial planner will do a free consultation to talk through your situation, and discuss some general approaches. That conversation can be 100% obligation-free. The financial planner will then draw up a statement of advice, which is their proposal for the work ahead, and outline of the costs involved.
If you decide to go ahead, there are two main ways that financial planners get paid:
1) Fee for service
You pay the financial planner for their work. What you pay depends on three main factors. First is the complexity of work. Are you asking for a complete investment strategy, or quick advice on a retirement plan?
The second factor is the amount of funds under management. This point relates to investment strategy and management services. When there’s more money under management, the stakes are higher, so you can expect a more hands-on engagement.
The third factor is whether you need a one-off service, or ongoing help. If you just asked for a one-off service, like quick advice on retirement planning, payments should end there. If there are ongoing service fees, what do you get for your money?
If you’re paying an ongoing service fee, you should expect at least:
- a yearly check-in to make sure that everything’s still on track (for example, adjusting your insurance polices if needed)
- updates if there are relevant legislation changes (such as changes to salary-sacrificing).
- updates if changes in the stock market could affect your investment strategy.
Financial planners may receive a commission if they refer you to get an insurance policy set up. This is a standard practice — insurers build commissions into their processes. It’s simply a way for financial planners to cover the time spent searching for the right insurance policy. It also brings down the cost of the service to you.
Commissions are only a problem if:
- the financial adviser isn’t totally upfront about these payments, or
- the financial adviser is locked into offering a narrow range of products.
2) How will you get me a wide range of options?
You want access to a spectrum of policies and investments, so you can choose one that fits your needs. Why would you hire someone to paint your house if they could only use white and red?
There are two factors that determine the spectrum of policies an adviser can access. The first is the adviser’s approved product list (APL). This is basically the collection of policies that the adviser is permitted to offer as part of their license. Some advisers who are tied to a large bank, for example, may have a narrower range of products that they can offer.
The second factor is the research tools an adviser can access. Advisers with digital databases can filter through hundreds of policies to find two or three good options, based on your criteria.
And for the databases to work well, it needs a whole support team, constantly updating it with the latest policies. This is one situation where a single adviser without a back-office team may struggle to give you the same level of service. So it’s worth asking your adviser what research support they have.
3) How will we work together?
The advice has to be sound, but the service also has to be convenient. If you’re a busy professional, you may not always have time to come into your adviser’s office between 9 and 5.
Ask if your adviser can offer:
- out of hours appointments
- conversations via Skype and email.
Some more conservative advisers may claim that the regulations don’t permit communicating online. It’s worth asking them why they say that; the legislation is starting to catch up with new technology. A lot of day-to-day online interactions are now permitted, and most advisers are updating their systems.
4) Are you proactive?
Will your adviser get in touch when something major happens — or will they wait for you? Your adviser can be extremely knowledgeable, but if they leave making contact up to you, that knowledge isn’t put to use.
Ask your advisor:
- How often will you get in touch with me?
- What are the situations where you might call me up?
- Can I call you with random questions? What are the costs?
5) What licenses or credentials do you have?
There are two main levels of qualifications for financial planners.
The first level is a Diploma of Financial Planning. That entitles someone to give general financial advice, such as explaining how level insurance premiums work. What they can’t do at this point is provide specific financial advice about your situation, such as ‘You should do X.’
To be allowed to give specific advice, an adviser must have an advanced diploma.
6) What’s your experience?
Academic qualifications are only part of the picture. Your adviser also needs experience: practice in applying that knowledge to the problems of the people who walk in their door.
I remember back when I was fresh out of uni and working for a bank. One of my first financial planning clients was a lady in her sixties, with $300,000 to invest, and a desire to retire ASAP. I knew all the theory, but how could I apply that to help her out? Luckily, I had some old hands who talked me through it.
Fast forward 15 years, and I’ve worked with people from all walks of life. That blend of experience and academic training is important to giving good service.
7) What’s your customer feedback like?
Almost every adviser has one or two satisfied clients they can point you to. For a really balanced view, though, use an online review site like Adviser Ratings. This captures all customer feedback: the good, the bad, and the mixed.
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