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Eight steps to expect when seeking financial advice

Seeking financial advice can be a daunting task. With more than 80% of Australians not obtaining financial advice and 45% of the adult population calculated to be financially illiterate, work needs to be done to help more people with their personal finances.

This article is for those people who have never sought financial advice before and who are wondering how to do it and what to expect.

To start, a distinction must be made between general and personal advice. General advice is usually what you find online or from a help line of a product provider. It becomes personal advice once you have provided information about your personal circumstances which is then incorporated into the advice. Obviously, the outcome of meeting with a financial adviser in which you discuss your situation is personal advice.

Finding a financial adviser

Several factors come into play here. A conveniently-located office is appealing, but do not forget that with the rise of virtual communication methods, you can now search a much broader area for an adviser. A recommendation from a friend or family member can also be a good start, but consider your ‘age and stage’ to ensure a good fit for your demographic.

Crucially, check on the financial adviser’s register on ASIC’s Moneysmart website. This shows qualifications and licence status. The MoneySmart website also provides a detailed checklist for choosing an adviser. A simple web search to ensure that they have not crossed the law at some point is a good idea.

Once you have chosen an adviser and firm, book some time for an initial meeting. Allow an hour or more, depending on the breadth of content you would like to cover.

Here are eight factors in a typical financial advice process but advisers, like most professionals, have their own unique ways of collecting, processing and implementing the services they offer to you.

1. The initial meeting

Advisers need to properly assess your situation and investigate the work that needs to be done. An initial appointment may involve one or more meetings, and is an excellent opportunity for you to determine whether you feel that engaging this adviser will work for you.

Skillsets and experience are fantastic, but that is not all that may be involved in future interactions. Demeanour and personality, including their ability to explain potentially complex themes, are important to ensure that you both fully understand and are confident in going forward with their recommendations.

Often people seek financial advice with one clear objective in mind, which is a great start, but then through the explanation of other areas of their financial (and personal) life will uncover additional scopes of work, or find new areas that influence the original objective. Therefore being open and honest is crucial to ensure that recommendations do not conflict with something unknown to the adviser.

A simple example may be that you have had a significant health issue in the past that could affect your ability to apply for new insurance going forward. Good advisers will help guide the fact-finding to ensure that relevant areas are discussed.

2. Fact finding

An adviser will need to summarise your current financial position using a ‘fact find’ document, covering current financial holdings, loans, superannuation and investment accounts. This may also include an investment risk profiling to ascertain your appetite for volatility and time frames for objectives, and an insurance needs profile.

Some advisers offer this document to you to complete before the initial meeting. It serves the meeting well if you can take the time to fill it in. At the very least, it can help you take a quick stocktake of your current position and saves time at the meeting to focus on your goals and objectives.

3. Scoping of work and pricing

Once your objectives and current position have been ascertained, the financial adviser will step through the work that needs to be done. This is often where the connectivity between your original objective and other areas emerges.

You may find that there are high and low priority areas. The ability to scope out topics not immediately required to be addressed can be an excellent place to verify the advice is delivering on expectations. This type of advice, which allows less vital areas to be dealt with at a later date, is called episodal or staged advice.

Finally, the work involved is priced, both for the preparation of the advice and any potential implementation that may be required. There may also be ongoing fees to ensure that the strategy remains appropriate.

As with all professional services, fees are normal. In the past, product payments and trail commissions have meant that the upfront cost of advice was often subsidised (or provided free!). Of course, this also raised the risk of conflicted advice that wasn’t in your best interests. Whilst fees are higher now, at least you can be sure that the advice is benefiting the right person.

There are several ways that advisers will determine fees, with ‘fee for service’ now more prevalent. Expect a price for the initial advice and some discussion on the ongoing cost of maintaining the strategy.

Whichever pricing method the adviser has chosen, it needs to be explained to demonstrate the value and give you the confidence to proceed.

4. Financial advice strategy

Most pieces of financial advice will have a strategy. In many cases, you will have sought advice because the problem you would like to solve, or the objective you want to reach, is difficult to see simply. Therefore the strategy provides the pathway to success. It also gives you an ability to reflect on whether the recommended route is workable for you.

Often in the formation of this strategy, some advisers will call an interim meeting to discuss their initial thoughts to help zero in on the most relevant pathway for you to take. An example may be projecting your income for an extended period, but instead, you are considering a career change or a return to education. This may mean that a couple of scenarios need to be calculated and may help give you confidence in these future plans. 

5. Research of products and services

Time needs to be taken to review your current financial products and holdings and research other options to meet your objectives. You should also expect that consideration of alternatives have been documented with reasoning as to why they were deemed appropriate for your circumstances.

Financial modelling is often used to project investment returns and insurance requirements. Ensure realistic return rates are used, particularly now that expected returns across all asset classes are significantly lower than in the past. One way to do this is to ask for historical average returns, then discuss the potential for lower returns going forward, and ask for an additional scenario to be modelled that reflects this expectation.

When recommending new products, mainly when replacing existing ones, there need to be clear and concise explanations of any benefits gained and features lost, including additional risks.

6. Presentation of financial advice

This work is then recorded and explained in a comprehensive document called a ‘Statement of Advice’.

In addition to the recommendations, take note that the summary of your present circumstances has been reflected accurately. If you feel that something has been missed or has changed, you should immediately flag this with your adviser.

It is good practice for the adviser to explain how the recommendations and advice are in your best interests. This can give you comfort that the primary objective of the advice is to leave you in a better position if you follow the recommendation.

This advice may be presented to you at a subsequent meeting, perhaps by PowerPoint, diagrams or even a video presentation.

Most advisers have moved well beyond providing only investment advice and now assist with estate planning, social security and aged care, and can bring in other specialists on issues such as mortgage origination or property search.

7. Implementation of financial advice

Now you have the advice on hand and the pathway in place, it must be implemented. Depending on your own experiences and comfort level in implementing the strategy and setting up the products or services, it is usually advisable to allow the adviser to implement the recommendations. There may be an additional fee, or it could be included in the advice cost of the Statement of Advice.

8. Ongoing service agreements

Depending on the proposed strategy’s length and complexity, some form of ongoing service agreement may be appropriate. This may take the form of a periodic review either annually or on an ad hoc basis as milestones are reached.

An exciting development in ongoing service arrangements is the ability to scope and personalise the level of continuing service you would like, and subsequently pay for, from the adviser. One option available is a subscription service that allows you access to the adviser and administrative elements (such changing bank accounts, addresses, married names etc.) but stops before the inclusion of personal advice.

This can be an effective way of retaining the adviser’s services to an extent, whilst keeping annual costs down and still providing the ability to seek advice when required for a fee. This reactive instead of proactive approach gives you more control if you prefer it that way, whilst still ensuring that the recommended solution is monitored for you.

Conclusion

Seeking help about your financial future is a challenging task. It involves fees but can provide value, comfort and confidence that a professional service is assisting with your personal goals and financial objectives.

 

Tim Fuller is Head of Advice at Nucleus Wealth. This article is for general information only and does not consider the circumstances of any individual.

 

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