Getting the right money advice — without having to sue
One of my favourite songs is Rihanna’s B*tch Better Have My Money.
The pop song is a thumping revenge fantasy after her accountants allegedly ripped her off, charging extreme fees, and giving her poor financial advice that meant she lost millions.
The music video goes even further, taking the term “blood bath” rather literally.
The lawsuit was eventually settled. I assume the accountants still have their limbs attached, in reality.
You don’t have to look far in popular culture to hear warnings of how badly things can go wrong with a financial adviser.
It’s a position of huge trust, where you ask someone to guide you in one of the most important areas of your life, where by definition they understand the area better than you do.
Judging by the emails coming into my inbox, plenty of readers of this column are quite worried about how to choose the right adviser.
It’s good, then, that the Financial Markets Authority has just overhauled the rules around financial advisers.
They now have to come under a licensed provider, and sign up to a professional code of conduct.
They also have to disclose any conflicts of interest, commissions they are paid, and limits on the companies or products they advise on.
This should mean they have to put the interests of their clients first, rather than selling you financial products purely because it gets them the biggest commission.
Robo-advice is also easier, a good change that allows simpler, cheaper advice to be accessed by those of us with simpler needs.
All of this is well and good in theory, but what about making sure you find the right adviser for you, and that they actually stick to these rules?
After all, we don’t all have Rihanna’s resources to sue the pain away, and issue a public warning to anyone else who might think of crossing us.
Here are some rules of thumb to help you vet the good ones.
1. Why do you need advice?
There’s lots of good, free financial information out there. But there can be times when you want guidance through a specific problem, and information tailored to your situation. That’s when a financial adviser can be useful. Big life changes like buying a house, starting a family, receiving an inheritance, or getting closer to retirement, can all trigger the need to chat with a financial adviser. Get clear on what you want them to help you with, then look for someone who specialises in that area.
Make sure they’re registered
Check that the person you’re trusting is a registered adviser, on the Financial Service Providers register. You can also search for specialists in your area, through the Financial Advice NZ website, the professional membership organisation for advisers. While you’re at it, it doesn’t hurt to give the company or adviser a quick Google. You’d be amazed what can come up.
3. Meet them before signing up
Most advisers will offer you a free first meeting, and for very good reason. The reason you’re talking to a financial adviser is to get advice that’s specific to your own situation. So this is your chance to talk about your life goals, your values, and the options you’re considering. Ideally, your adviser should understand what makes you tick, and tailor your financial plan to that. Don’t put up with someone who talks down to you, doesn’t get your goals, or makes you feel bad for asking questions. Those are signs of a bad fit.
4. Ask how they’re paid
Even after the rule change, plenty of advisers work on a commission model. That means they can get paid a bonus by a company if they get you to sign up to their financial products. The difference now is that they must tell you about it upfront. Of the investors who charge you instead, they might have a flat fee, an hourly rate, or a percentage of everything you invest through them. If their fees aren’t making sense, ask them to walk you through it slowly. You’re the customer. I would rather pay for an adviser myself, and be sure that they’re giving me 100 per cent unbiased advice. You should also be aware that someone who offers free advice while working for an outlet such as a bank, or KiwiSaver provider, is likely only showing you the options that their company provides. While I’m sure they can help you choose between their products, there could be something at a different company that would work much better for you. But that’s just me. Decide what you’re comfortable with, and make sure you know what you’re signing up to.
5. A personal recommendation is worth its weight in gold
Not everyone will have friends or family with a financial adviser, but if you do, take the time to talk to them. You’ll still need to do your own homework. A good question for when you sit down with the adviser could be “how have you helped other people in a similar situation to me?”.
This column is general information only, and not individual financial advice.
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