Selecting a Financial Planner

Selecting a Financial Planner

Investing for retirement will require you to make some of the most important financial decisions of your life. There are many investments available for purchase. Not all will be suitable for your particular situation.

Financial planners are people who may be able to help you choose the right investments and create appropriate strategies to achieve your financial goals.

Financial planners are authorised by holders of an Australian Financial Services (AFS) license or an Authorised Representative. They often operate through dealer groups. Dealer groups range from ‘institutional’ to ’boutique’.

Institutional dealer groups typically include banks where planners usually operate from bank branches and work to bank provided supervision, compliance and direction. Other large planning groups may operate under a franchise or agency arrangement owned by a large financial institution that provides supervision and compliance as well as allowing some autonomy. They often have access to a more diverse range of products.

Boutique dealer groups often specialise in a particular segment of the community that use an independent approach requiring internal discipline for supervision and compliance. This means that the investment options they offer may be broad.

Selecting a planner is an important decision. You should choose a planner you feel you can work with and can trust. Remember that financial planners earn their living by giving advice and selling products. How they receive payment will vary and may be from:
  • commissions paid from the entry or management fees you pay the companies providing investments.  It is expected that these will be phased out as part of the FOFA reforms; and/or
  • fees charged directly to you

– on an hourly basis for service

– as a percentage of your investments.

For further details see section The Choices in Paying for Financial Advice.

Checklist to Use When Choosing a Financial Planner

Financial planners are listed in the Yellow Pages and the websites of their professional associations including the Financial Planning Association (FPA), the Independent Financial Advisers Association of Australia (IFAAA) and the Association of Financial Advisers (AFA).  The best advertisement a financial planner can have is a recommendation from a satisfied client so asking friends, relations or colleagues may provide a good referral.

It is worth checking if the FSG given to you has answered the following questions and, if not, seek clarification from your prospective financial adviser.

  1. Does your organisation have at least five years experience in financial planning
  2. Does your organisation hold an Australian Financial Services (AFS) Licence or are you or your organisation an authorised representative of a licensee?
  3. Does your licence restrict the range of investments you can recommend?
  4. Is your organisation free of any obligation to place funds with a particular investment company?
  5. Do you or your organisation have professional indemnity insurance?
  6. Do you provide a written Statement of Advice (SoA) showing all investment fees, commissions and the total cost to me?
  7. Is there a fee to get a SoA?
  8. Does your written SoA explain the Government Income Support and taxation implications of the recommended strategies and products?
  9. Does your written SoA show the risk potential of investments recommended and match them to my risk profile?
  10. Is there any room for negotiation on fees?

Finally: Are there any other fees or charges about which I have not been told?

If the answer to any of these questions does not satisfy you, contact another financial planner.

‘Statement of Advice’ (SoA) referred to in this document can also be referred to as ‘Financial Plan’.

The Advice Given Should:
  • Be in writing and without obligation to proceed.
  • Disclose all entry feesexit fees and any other costs to you in dollar terms.
  • Take into account Government Income Support and taxation implications.
  • Include the exact reasons for selecting the proposed investments, showing how they meet your needs and objectives.
  • Clearly state your risk potential.
  • Provide for ready cash reserves.
  • Spread your investments between product types and investment market sectors according to your risk profile.
  • Indicate the level of income to be generated and match your income needs.
  • Where a recommendation is made to transfer an investment from one product provider to another the reasons for the transfer and any costs should be stated.

Providers of Financial Advice

Australian Financial Services (AFS) Licensee

The Financial Services Reform Act (FSRA) requires all providers of financial advice to hold an AFS licence or be an Authorised Representative of a licensee. As well as covering new entities, AFS licences replaced previous licences for insurance brokers, securities dealers, futures brokers and futures advisers.

A holder of an AFS licence may:
  • provide financial product advice
  • deal in a financial product
  • make a market for a financial product
  • operate a registered scheme
  • provide a custodial or depository service
Authorised Representative

Authorised representatives may be businesses or individuals who have been given authority by the holder of an AFS licence to give advice on and sell their products.

Authorised representatives may hold authority from more than one licensee.

Other Considerations:
You should also satisfy yourself on a range of other issues before choosing to deal with a financial planner.
  • Ask to see a copy of their letter of authority.
  • Ask if they are limited in the products they can recommend.
  • Ask what experience and qualifications they have in financial planning.
  • Ask what source of research they use.
  • Ask if they offer an ongoing service for monitoring the plan/portfolio and what fees are charged for the service.
  • Ask if the adviser will give advice which is suitable to your investment needs and financial circumstances.
  • Ask what you should know about any risks of the investments or investment strategies recommended.
  • Ask what information the adviser maintains in your file and whether you can examine my file.
  • Ask if you can instruct the adviser to buy or sell your investments.

Always remember, it is your money so when selecting a financial planner don’t be shy to ask questions. It may also be wise to obtain statements of advice from more than one financial planner before investing your money.

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