|
NEWS - PLANNING
The perfect planner
8/1/2005
Faced with the brave new world of super choice and an increasingly complex array of investment products, it is more important than ever to find a financial planner who is right for you.
How do you know when you first meet a financial planner that they are the best person to steer your assets around the many financial speed humps and pitfalls ahead?
How do you know you are not going to get ripped off through punitive commissions and charges?
Will you receive advice that is not suitable, or that lines the planner's pocket rather than yours? Will you be left in the dark while they deal with your financial future?
Unfortunately, there are no sure-fire ways of safeguarding yourself against unscrupulous advisers, or even of finding an adviser who understands your investment priorities.
That said, by asking the right questions of a planner, you should be able to gauge whether he or she is right for you.
To help you find the right adviser, Smart Investor has compiled a list of 10 questions. We have also asked some experts to give their view on the answers you should receive, and to pinpoint a few things that ought to set alarm bells ringing.
You will find that the experts don't always agree among themselves, but that's because in the world of financial planning, there is no such thing as "one size fits all".
A financial planner who may be great for someone else in your family, or for a close friend, may not be suitable for you - that is just one of the many things you need to be able to determine.
These are also not the only questions you should ask and nor should this first meeting be a simple question and answer session.
Andrew Creaser, deputy managing director of Genesys Wealth Advisers, says there are two things above everything else that will make this relationship work - trust and integrity. You have to feel both are present in all your dealings with your financial adviser.
Sylvia Dickson, principal at Dickson Bonacci, says you can add "openness" to that, while Jeff Wain, executive director at The Money Managers, says the initial meeting should be about getting to know each other, rather than solving strategic or technical issues.
"The adviser should want to know about the goals, dreams, values, and aspirations of the potential client to determine if he or she is able to add value towards these objectives and, if so, how," Wain says.
"The client should be seeking a coach, mentor and confidant who understands their needs, wants, fears and foibles and who can demonstrate an ability to communicate complex issues in an easily understandable and relaxed manner."
Paul Moran, principal financial planner at Cameron Walshe Financial Planning, says the first meeting should be as much about what a financial planner asks you as the questions you ask them.
"There is always a tendency to put a lot of emphasis on the things your adviser should tell you, but it is equally important to get a feel for the things your adviser thinks are important about you," he says.
"For example, if the first question your adviser asks is 'How much money have you got to invest?', this tells you something. On the other hand, if your adviser spends some time getting to know you as a person, and tries to find out what you think is most important about your relationship with an adviser, it tells you something else."
Moran says advisers should identify your investment experience, your lifestyle expectations, the key goals you have set and what you want from a professional relationship with them.
"I believe they should send you away after the first meeting to consider all that was discussed and leave the onus on you to make the second contact if and when you are ready. Any adviser who wants to transact in the first instance should be avoided."
Laura Menschik, managing director of WLM Financial Services, says it is very much a case of getting comfortable with each other.
"I always tell prospective clients that, first and foremost, they need to feel comfortable with whomever they choose, as they need to be honest with them and trust them," Menschik says.
"The lines of communication and information exchange must be open both ways.
"In the same way that clients want to be communicated with, advisers need to be told when things change or if clients have made any major decisions that will affect what the adviser is trying to achieve for them."
The way the financial planner approaches the following questions should give you a feel for whether you are going to be comfortable with that planner, and they with you. As Menschik says, it is very much a two-way thing.
1. What are your qualifications?
Cameron Walshe's Paul Moran says there are some "Mickey Mouse" courses around, so look for key providers such as SIA, FPA or RMIT and full financial planning qualifications such as a diploma, a graduate diploma or masters in financial planning. Neil McKissock, principal consultant at Godfrey Pembroke Financial Planning, says that advisers should be certified financial planners and members of the Financial Planning Association.
2. What is your experience?
Dickson Bonacci's Sylvia Dickson says some financial planners have a lot of qualifications but don't know how to apply them.
"The ability to apply financial planning knowledge is critical," she says. "While financial planning is a highly technical discipline, there are significant subjective elements to it - it is as much an art as a science.
"Communication skills and judgement, gained through years of practical experience, are essential to achieving the right outcome."
Moran says that planners should have at least three years' experience in offering personal advice, while Money Managers' Jeff Wain says you should not be afraid to ask the planner about their career history.
"Remember that the planning industry is barely two decades old, so many advisers have worked in other fields before making a career change," he says. "Find out why they moved. What motivates them.
"How does their background make them better equipped to provide advice? What are they reading on a professional and personal level? How do they stay informed? How do they demonstrate their commitment to continual learning and ongoing professional development?"
Wain says you can find out how passionate and committed they are as a planner by asking them to nominate some of the key issues and challenges facing the industry.
"Do they have opinions or are they simply an order taker or salesperson for their firm?"
3. Who is your typical client and what do you do for them?
This question was not so popular among the experts. McKissock says it will help determine whether the planner's clients are mainly young wealth accumulators or retirees - "you want to know where you fit as a new client". Moran says the question will help you to determine whether you are in the right asset bracket for the financial planner, as advisers tend to differentiate themselves into three groups by asset size - up to $300,000, between $300,000 and $1.5million, and lastly, $1.5million and above.
But Genesys's Andrew Creaser says there is no specific answer to this question "other than to determine whether the adviser has other satisfied clients in similar circumstances to your own".
He argues that you should ask for references instead.
4. Do you specialise in a certain area and are there any restrictions on where you can advise me?
Dickson says this will make sure you have a good fit between an adviser's ability to deliver on your expectations, while highlighting any areas where there may be a shortfall. Moran says some advisers are only qualified to sell managed funds, or cannot advise on pensions.
5. How will you get paid for your services, both initially and on an ongoing basis?
Wain says this is a pivotal question as it clarifies the issue of whether the adviser will be taking fees or will be paid a commission. "You need to have a definite view on how you feel about this," he says. "People must understand that advice is not free - it comes at a cost, just like everything else. But you can choose to know that cost or you can choose for it to be vague and opaque."
Creaser says the right answer should be focused on fees rather than brokerage. "Having said that, there are some areas of financial planning, such as insurance, where brokerage is a far more practical way of being paid for advice," he says.
"A client should be looking for an answer such as: 'I get paid either by fees or brokerage depending on the most appropriate way for you to pay me. More importantly, our approach is on a no-surprises basis where you will be informed of all the costs of using our services before these costs are incurred and you will understand exactly how these costs are divided up between the product manufacturers, the administrators, my dealer group and ultimately me as an adviser."'
McKissock says this information will be in the financial services guide given to the client by the adviser at the first meeting.
"There is nothing wrong with commission/brokerage, as long as the client understands it, and this basis of charge is best for them," he says. "For example, on small funds, invested brokerage may be the most cost-effective method of payment."
Moran says you should be wary of an adviser who "pretends to be fee-based, but charges a fee based on a simple percentage of the investment".
6. What is your service offering?
Moran says advisers should be able to describe clearly the services they offer. "In particular, how many times will you meet face-to-face each year? How are the portfolios managed and how often are they reviewed? Who will be managing your account on a day-to-day basis? What is different about the service offering compared to other advisers?"
Menschik says the question could be extended to include connections the adviser has with other types of professional advisers, while Creaser says you should avoid those that offer services that are transaction or performance related.
7. Are you tied to the company's products you are recommending?
Dickson says this will help determine any potential conflicts of interest, while McKissock says this is particularly important as some large institutional advisers are restricted in what they can provide to a client. Creaser, whose company Genesys is owned by Challenger Financial Services, says you should be aware of these alliances, but at the same time maintain an open mind.
"Institutional ownership of a financial planning business does not mean that you will not receive unbiased advice, and conversely, independent ownership of the business does not guarantee independent advice," he says. "The question should be, 'Are you compelled or remunerated to recommend one company's product over another?"'
8. Do you have a single platform approach?
Moran and McKissock say the adviser should be able to offer more than one platform, while Dickson says that if there is only one wrap or master trust platform offered, the advantages and disadvantages of this approach must be clearly explained to you.
9. Where do you think you can add the most value?
Dickson says this will determine the approach the adviser intends to take, be it by applying a strategic framework, by achieving high investment returns, by tax effectiveness, by ongoing management or by being a sounding board and a coach.
Moran says this is a particularly good question to ask. "It is really asking the adviser what is their core value proposition? If this cannot be satisfactorily answered - keep on looking for an adviser!"
10. What is your succession plan.
When do you plan to retire and who will take over my account when you finally do?
McKissock says this is important, "particularly if the adviser is gray and balding!" He says the adviser should be able to introduce a successor and support staff.
Dickson says a lot of clients will not take on a financial adviser who is older than them because they know they will be retiring before they do, while Moran says this should always be asked but is more important when you are dealing with an adviser who is closer to retirement than many years away.
Creaser says you should look for a business answer that shows the firm has the resources in place to cover any eventuality, and has several authorised financial planners who you know and who are familiar with your file.
Reproduced from the Australian Financial Review - 27 Jul 2005
|
|
|
