Getting a gun adviser is money well spent

Here’s a sobering thought: it takes considerably longer to become a hairdresser than a licensed financial planner.

Think about that the next time you are getting your fringe trimmed after your planner has told you what to do with your life savings.

It was not that long ago that you could start an online course on Friday and by Monday be qualified to administer advice to people about how to structure their life’s financial affairs.

Standards are improving, thanks to the efforts of the many dedicated and skilful financial advisers who believe their profession’s less-than sparkling reputation is undeserved. The advice industry boasts plenty of competent and trustworthy people whose instructions will likely save you a heap of money.

The nasty press the industry cops makes it seem like getting a planner is about finding a good apple in a barrel of bad ones. It’s really about avoiding the bad in a barrel of good.

So how do you know your planner is a gun?

Insisting your planner has a university qualification, such as a business, economics or commerce degree, will sort some wheat from the chaff. But the sifting process becomes less scientific after that.

The Financial Planning Association is promoting Certified Financial Planner status as the gold standard in the industry. The plan is to one day ensure the CFP moniker holds the same weight as being a Certified Practising Accountant does for accountancy. They have a way to go but in the absence of many other yardsticks, being a CFP is a solid start. It means your adviser must have completed a certification program, had at least three years’ industry experience and hold an undergraduate degree or better.

Determining who the planner works for is also important. The majority of planners work for companies ultimately owned by the Big Four banks or AMP. There is the potential for those planners to suggest you purchase products such as life insurance, mortgages and investment portfolios through the parent company. Be aware of this but don’t get too paranoid. There are plenty of planners working for Westpac, ANZ, National Australia Bank, Commonwealth Bank, AMP or IOOF who are extremely competent and offer competitive products.

CBA’s Comminsure insurance products, for example, are undoubtedly good value for many people so a CBA-aligned adviser should rightly recommend you use them. But you could be forgiven for wondering whether a Westpac planner would suggest the same strategy.

Work out how your planner gets paid. For many years the profession’s payment model was based on commissions. If they put you into a particular product, such as a managed fund or income protection insurance, the owners of that fund or insurance company would pay the planner a percentage of the value of the investment or policy.

Needless to say, it opened the door for unscrupulous advisers to favour the products which paid them best, not the ones that best met the needs of the client. Having said that, many planners use this model judiciously to limit the upfront fees levied at clients. This is a valid method of payment and should not be discounted but many planners have now adopted a fee-for-service model. That is, you pay them a set amount to look after you and they get the best products they can with neither fear nor favour.

How much you should pay depends on the complexity of your affairs. But expect to cough up $3000 to $5000 for them to draw up a plan and about the same to execute it. Annual fees, if set, should be around this also. If your planner does not charge a set fee and works out his or her pay according to a percentage of the funds they are managing, then between 0.5 per cent and one per cent is pretty standard.

Finding a well-qualified planner who is not biased towards a parent company and who has a transparent fee structure is a great start. But don’t hesitate to walk if your gut tells you to.

Did you feel like you could trust him or her? Were they absorbing what you were telling them? Did you feel you could tell them anything?

That last bit is important. The reality is you need to have the same relationship with your planner that you have with your GP. When you go through life’s highs and lows your first call is usually to the doctor. The second will be to your planner.

Financial Planning Association national chairman Neil Kendall told Your Money readers to aim high.

“You are not just trying to avoid a bad planner, but trying to find a good one, ” he said. “You have to be personally comfortable with the planner and fees.”

His most important advice? “If you don’t understand it, don't do it.”