How do I find an honest financial adviser?
As revelations of dodgy financial advice continue to come to light under the royal commission, entrusting your money to someone else can be risky business. A recent report from the corporate regulator, Asic, found 75% of financial advice in its sample breached the law. With appalling numbers like these, it’s worth protecting yourself from bad advice rather than hoping you’ve found one of the honest few. No one but you will ever be more interested in protecting your money and making it grow – that’s the first thing to remember.
Where you can, trust in yourself to do the research and avoid the need for costly advice. There are independent self-help guides out there, like the ones on the Choice website or via the Asic MoneySmart website. Some products such as superannuation also have safe default options to help remove some of the guesswork.
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But what do you do when it all gets a bit too difficult? Reading 100page insurance, superannuation or managed fund disclosures is enough to put anyone to sleep, let alone trying to read more than one, so you can actually compare products. You might also be considering how it all fits in with your tax and longterm savings goals. This is where you might start to need advice. Based on our decades of reviewing financial advisers and some of the more recent revelations in the royal commission, here’s a quick checklist to help guard against the shonks:
Ensure they are licensed to provide advice or are an authorised representative of a financial service licence holder. You can check this with Asic.
Ask for a full disclosure of which financial institutions the adviser has a relationship with. As we’ve seen in the royal commission, advisers are more likely to recommend products offered by a parent bank rather than others that may be better for you.
Ask why the adviser is recommending one product over another and what commission they may be receiving. Commissions create conflicts. While the recommendation might still be valid, the adviser should be able to clearly explain why the advice suits your circumstances.
Make sure you get an annual statement outlining the advice you’ve received, why it was given, how much it costs and if the adviser charges on an ongoing instead of a fee-for-service basis. The royal commission has revealed tens of thousands of Australians were charged fees on an ongoing basis without actually receiving any advice. In one case a man who had been dead for a decade was still being slugged with ongoing fees. Advice provided on a fee-for-service basis tends to be of a higher quality.
It shouldn’t have to be this hard. In 2014 the government attempted to fix the problems in financial advice, but the banks fought tooth and nail to get carve-outs, and unfortunately they were successful. Conflicted remuneration still exists, and advisers can still reap huge commissions from grandfathered advice received before the protections came in, from selling life insurance and asset-based fees. It’s time to finish the job and ban conflicted advice for good.
No one should have to rely on costly advice to get quality financial products. We need basic default options like we have in superannuation, which suit most people’s needs and help navigate a complex financial market.
• Xavier O’Halloran is Choice campaigns and policy team lead