The eight steps to finding a planner

The team at The West Australian’s Your Money personal finance section is regularly asked one question.

It’s not about asset allocation, or how much super you can salary sacrifice, or the cut-off point for receiving the age pension.

It’s this: Where can I find a good financial adviser?

What’s worrying is that many of the people asking us for direction on this point have an adviser or planner but they either don’t trust them or don’t feel they are getting value for money. Unfortunately, finding a good financial adviser is harder than finding a good doctor.

At least when you go looking for a new GP you know that all doctors in WA need to be registered to a board that has rigorous standards. Not so for the financial advice industry.

Michael Gething, WA regional commissioner with the Australian Securities and Investments Commission, has told investors looking for a new adviser to remember that as the client, they are in charge.

“Remember, you’re effectively interviewing planners for the job of assisting you with your finances — it’s your money and you have the power to select or reject a planner, ” Mr Gething said.

“Doing some homework first is vital and you’ll find that by taking that approach, many will be weeded out even before the first interview.”

The good news is there are a few basic things you can do to minimise your chance of getting lumped with a ratbag.

1. Don’t reinvent the wheel

If you need a painter or a mechanic, there’s a good chance you will ask friends and family for a recommendation. Don’t be shy in asking them whether they have a financial adviser they are happy with. Just make sure the person they recommend has been providing advice for more than a couple of years — you don’t want a fly-by-nighter. Ask your accountant as well.

2. Find common ground

Make sure a prospective planner has clients similar to you. Planners specialise, so if you are a public servant in your 40s with kids at home and a huge mortgage, don’t sign up with someone who bills themselves as an expert in self-funded retirees or small business people.

3. Transparency

Determine who the planner really works for. All roads tend to lead to Rome in the financial planning industry — Rome being the Big Four banks. Don’t be surprised if the seemingly independent suburban planning outfit you walk into is actually a subsidiary of ANZ or NAB. There’s nothing wrong with this — there are many planners who have links to the big banks and deliver great service to their clients. But be aware there may be a bias to push you into a suite of products which are delivered by the parent company. Again, this is not necessarily a bad thing, because these products are often the best on the market. But go in with your eyes open.

4. Qualifications

It wasn’t that long ago that you could jump on the internet, fill out a questionnaire and walk away being able to tell the world, without lying, that you were a qualified financial adviser. Things have tightened up a bit but ideally your adviser should have a commerce or business degree in addition to an industry qualification. A B.Com, B.Bus or B.Econ means they should know the law, accounting, economics and financial mathematics. Industry qualifications such as Dip FP, ASIA and Dip FS indicate that the adviser has been taught and passed subjects uniquely associated with financial planning. Full membership of professional associations indicated by letters such as CPA, CFP, ASIA or ICA indicate that in addition to complying with the legal requirements, they are bound by professional rules of conduct with serious penalties for breaches.

5. Show me the money

The expression “trailing fees” has been dragged through the mud of late but don’t be paranoid if your adviser receives them. These are the fees that a planner receives from the business offering the financial products (such as managed funds or insurance) that you are signing up for. It’s exactly how a mortgage broker works. They go out and find the best deal for you and you don’t pay for their services because they get a clip from the bank they are taking the mortgage with. It is a completely acceptable way of doing business, as long as the advice you are getting is not influenced by the possibility of or size of the commission. And make sure the clip isn’t too big. Anything more than 2 per cent should ring alarm bells. Depending on the complexity, a full financial plan can cost between $3000 and $5000, and possibly much more. If you don’t want to pay upfront, then the trailing fee structure is a viable option. However, in some cases the best financial advice won’t involve investment products. For example, for many young families, the best advice might be to pay off debts, prepare a will and take out life insurance. Usually the cheapest option is through the employer superannuation fund. In this instance, a planner who only collects commissions may provide biased advice. If you don’t like the trailing fee method then find a planner that is happy to charge either a flat fee or by the hour. Be aware that on top of these fees they may still get the clip from the companies behind the products you are signing up for.

6. Is there someone else?

Ask them how many clients they have, do they themselves prepare the plans and will they be your ongoing adviser. Proper financial planning requires continuing reviews. A review involves meetings to report on performance, re-examination of objectives, consideration of any legislative changes and to ascertain the appropriateness of the original strategies.
This takes time and if the adviser has thousands of clients, he or she is unlikely to be able to provide such a service. Some advisers will contract out planning work to third parties who prepare plans based on the data collection prepared by the adviser. Users of this approach argue that this ensures the plan is legally compliant and is “up to date”, but opponents maintain that such plans tend to be “generic” and usually don’t fully deal with the client’s needs in all areas.

7. Proof in black and white

Ask to see a sample plan prepared by the planner. A comprehensive financial plan will run to many pages and should contain discussion about areas such as your objectives, cash-flow, investments, insurances, estate planning and taxation. Rather than simply generic information, it should analyse your specific situation in these areas and, where deficient, provide strategies which set out the pros and cons in an objective way. Needless to say, the plan must include detailed information about the costs of implementing and maintaining the strategies and if applicable, the costs of changing investments.

8. Feel the love

This is always overlooked. You will always look at the fees a GP charges you but will likely be willing to pay a premium over the bulk-bill rate if you have a connection with the person across the desk. If you feel comfortable with a potential adviser, if they come across as genuine, answer your questions in a straightforward manner and are upfront about how they get paid, then trust your gut. If you are at an age where you feel you need a planner then chances are you won’t be in your teens or early 20s. You have probably been around and can sense when something is off. If the planner provides a good service he or she will be with you, offering advice, at critical parts of your life. They will see the good, bad and ugly sides of your life as birth, death, marriage and divorce change the financial needs of your family.