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How to Choose a Financial Adviser

1 Aug 2013 9:23 PM - Joshua Stega, Financial Adviser Sydney

5 Steps to Help You Choose a Financial Planner / Advisor

Not all advisers were created equal. In fact almost half of the advisers in Australia only have a diploma level of qualification. We have summarised five measures you should consider before choosing a financial planner or adviser.

1.      Qualifications

The first measure of a good financial adviser is their level of qualifications. You have to remember that financial planning is a relatively new discipline hence many advisers were traditionally sourced from sales based roles such as stockbroking or insurance sales. Many financial advisers do not have the level of qualification required to provide comprehensive financial advice.

From ASIC’s recent July 2013 report only 36% of financial advisers have a tertiary level qualification or higher.

Source: ASIC 2013, Report 362.
                                                                                                                                                                       Source: ASIC 2013, Report 362.

I don’t know about you, but I would prefer to have my retirement funds managed by a suitably qualification professional who is passionate about what they do, rather than a good investment broker or salesman.

You should look for a financial adviser with a minimum tertiary level of qualification, a masters degree and either a CFP qualification or as we prefer the SPAA accreditation. This measure alone will rule out 64% of advisers as being insufficiently qualified. You should try and source advisers with a broad qualification base, including accounting and taxation which is a crucial element of personal financial advice.

"Ask your adviser what their highest level of qualification is and make sure it is relevant to the provision of personal financial advice."

2.      Experience 

When it comes to finding an adviser to manage our wealth you cannot rely on education only. On the job experience is the second crucial measure of a financial adviser. According to ASIC, only 68% of financial advisers have 5 years or more experience. Therefore you can rule out many potential advisers simply by asking how long they have worked specifically in financial planning.

In general you should also avoid advisors who only have experience in sales based roles. You should be doubly cautious if you have a sales based advisor who is being remunerated by commissions on transactions such as stockbrokers or insurance only salesmen.

"Ask your adviser how long they have worked as a financial adviser to individual clients."

3.      Privately Owned Business

Look for an advisor who works in a privately owned practice that is not owned, in all or in part, by a financial institution. The financial planning divisions of many of the large banks and financial institutions are solely distribution channels for internally generated products. Traditionally the bulk of the revenue generated by financial planning businesses was made up of commissions for product sales. Most existing financial planning businesses will not be viable as professional advice businesses.

If you want a high level financial advice, you should be prepared to pay for that advice, just like you pay for an accountant or lawyer. You should not expect to receive advice for free, because somewhere along the line revenue is being generated and you don’t want this to be at the expense of your long term investment returns.

"Ask your adviser who owns the business they work for and how they generate the bulk of their revenue."

4.      Product Independence

Most financial advisers have a very limited ability to access different products and investments. In most cases if you go to an adviser from a certain financial institution they will only recommend internal products. You will not receive advice which is in your best interests if the adviser is limited to the selection of only internally branded products.

"Ask your adviser what their approved product list is and if this includes products and investments from a broad range of financial institutions."

5.      Qualifies in Direct Investments

The vast majority of advisors have no understanding of direct investment markets. Financial advice involves two elements, strategic financial advice and investment advice. Financial planners have traditionally provided great strategic advice but poor investment advice because they are not qualified in this area. Investment markets are complex and the skills to make investment decisions need to be learnt with direct market experience.

Even if your adviser only uses managed funds, they still need to know how the underlying assets are performing and more importantly if it is a good time to buy, sell or hold. If we experience another GFC style situation a financial adviser with no investment knowledge will simply advise you to hold your investments through the storm. We all know how this worked out for the vast majority of retirees.

"Ask your adviser if they can provide advice on direct equities and, if so, how long they have worked in direct investment markets."

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The Wealth Guy | Joshua Stega Financial Adviser Sydney

Joshua Stega, is head of financial advice at JAS Wealth (privately owned financial planning firm in Sydney). He helps successful individuals manage their wealth. He has a Masters in Taxation & Financial Planning, is a Fellow of the Taxation Institute, a SMSF Specialist Advisor and has significant direct investment experience.    Google+     Twitter     LinkedIn     Facebook     Instagram

M.TaxFP, LLB(Hons), B.Bus(Acc), FTI, Adv.DipFP, DipFP, SMSF Specialist