Following the financial planning scandals that have cast a dark shadow over the advice industry in recent times, institutionally-aligned financial planning businesses have since repositioned themselves, spruiking their so-called ‘goals/objective-based advice’.
This raises some important considerations for investors, who must do their due diligence to ensure financial advice provided truly aligns with their best interests. So where do you start?
You may be surprised to learn that the typical institutional financial adviser-client meeting has used the same, restrictive formula to provide advice for many years. Often, during the meeting, the adviser assesses an individual’s income and asset position as well as their risk appetite through a questionnaire and puts forward investment products that meet these criteria.
This is an outdated approach that doesn’t get to the heart of an individual’s needs. And it certainly doesn’t lead to goals-based advice.
True goals-based advice is achieved by putting the individuals’ goals, instead of the institutions’ products or a kickback to an adviser, at the centre and building a strategy around these goals. It involves meeting with a qualified, independent adviser to gain an intimate understanding of what is truly important to the individual. Independent financial advisers look at what clients want to achieve in the short, medium and long term.
Here are three things to ask yourself when beginning to work with an adviser to ensure you are receiving true, independent goals based advice.
Is the conversation centred on you?
An adviser needs to understand what you are trying to achieve. It may be as simple as saving for a home deposit or a long-term goal of accumulating/preserving wealth for retirement. This cannot be ascertained from a risk-profiling questionnaire or data collection form. Instead, it comes from a detailed conversation, sometimes multiple conversations with your adviser that delve into your current situation, your needs and wants, and most importantly of all, your goal and objectives.
Even if it’s as simple as buying a property, why are you looking to buy? Where are you looking to buy? Will you live in it or rent it out?
You want to be sure that your adviser is working for you and not pushing you into a specific investment product. Don’t be afraid to turn the conversation back to yourself and if they present you with a risk-profiling form, don’t be afraid to ask them why.
Can you sleep at night?
The ‘sleep at night’ factor is an important part of providing goals-based advice. You need to be comfortable with your financial strategy and understand the pros and cons of each step you take.
If your adviser is bamboozling you with rates of return, risk metrics, compound earnings and commissions that you’re stressing over constantly instead of sleeping, I recommend you take a step back and assess whether or not they are providing the advice you truly need.
And remember, just because you can doesn’t mean you should.
Is the advice you receive independent?
Independent advice firms exist to provide clients with independent, unbiased advice. They are committed only to client relationships and achieving positive outcomes for clients, for which they charge a fee for service. This gives the advantage of offering a range of product and investments to achieve your goals and objectives, not line the pockets of product manufacturers.
If you can’t tell whether you’ve selected an independent adviser, I encourage you to ask the question. Independent advisers operate their own Australian Financial Services Licence (AFSL) and do not accept commissions.
Using goals-based advice make sense, it is not rocket science. Remember, quality financial planning focuses on the relationship between adviser and client.
Simon Curtain, director and private client adviser, Hewison Private Wealth