Unless you’ve been living under a rock, you would be aware of the banking royal commission, which has shone a spotlight on the toxic culture of the banking and financial services industries.

Sadly, the financial advice industry has often attracted the equivalent of dodgy used car salesmen… those with the gift of the gab who could sell ice to eskimos. This has led to scandal after scandal, many people losing their life savings and a general distrust of financial advice in the community.

However, there are many, many people in the financial advice industry, including myself, who are passionate about improving the financial lives of as many people as possible and who give advice the way it should be given.

Most people I speak to say they don’t know enough to make confident financial decisions and the reality is that financial literacy is quite poor because money skills are not really taught at school or in the workplace. Almost everyone in Australia could benefit from expert financial advice, but a big part of the battle is finding someone you can trust. With that in mind, here is what to look for to ensure you get great advice and value for money.

QUALIFICATIONS

Higher education standards are coming and many who’ve been giving advice for years will leave the industry rather than actually do the study required. Up to 8,000 advisers are predicted to leave the industry for that reason. Out of an industry of 25,000 advisers, you don’t need to be a mathematician to see that a significant number of advisers lack the qualifications you probably expect they should have. In fact, 48% of financial advisers do not have a degree! Until recently, it’s been possible to become authorised to give financial advice after completing a 4-day course with no exams. If you knew the person giving you advice had so little in terms of qualifications, would you take their advice? Ensure that your adviser at least has a diploma, advanced diploma or degree in an applicable field such as commerce, economics, finance, accounting or financial planning. Ideally, they should also be a Certified Financial Planner®, the highest financial planning designation worldwide.

HOW THEY GET PAID

If your adviser accepts commissions or charges fees as a percentage of how much money you have, then it might be wise to run for the hills. Commissions have in many ways been the driver of dodgy behaviour within the financial advice industry. If someone is incentivised to sell a product instead of giving advice in the best interests of the client, then there’s a reasonable chance the advice isn’t going to be great. As for percentage-based fees, they are simply commissions by another name and the opposite of how professionals charge for their services.

There is no other way anyone should be paying for advice other than fee-for-service. Once product commissions and percentage-based fees are out of the mix, a fee-for-service arrangement between adviser and clients leaves little reason to do anything other than simply recommend what is in the best interests of the client.

INSURANCE SALES OR INSURANCE ADVICE?

Here’s something worth knowing… many people in town will have sought advice for life insurance and income protection insurance, as they should because these are vitally important and most people are underinsured. These types of insurances are often ‘sold’ by financial advisers who collect huge commissions for selling the products of insurance companies. But those commissions they receive come at the expense of their clients, who will pay 30% more for their insurance EVERY year to fund the commissions payable to the person who sold them the insurance. 30%!

IN-HOUSE PRODUCTS

And finally, be wary of advisers who want to get you into their own in-house products. For example, AMP or bank financial advisers who want to get you out of your high-quality industry fund and into their in-house product… the reasoning for which may sound great but is almost certainly not in your best interest. While not an in-house product, it’s also worth noting that you should be highly sceptical of advice telling you that you need a Self-Managed Super Fund so that you can have ‘control’. While appropriate for a few, most SMSFs have been recommended with a view to the adviser controlling the client, not for the client to have control of their superannuation.

The Royal Commission will hopefully be the line in the sand where dodgy advice practices finally become public knowledge. It’s worth noting that only around 20% of people in Australia seek out financial advice, meaning most people never get advice that could make a huge difference. I don’t think it’s a coincidence that 80% of Australians end up relying on the Age Pension in retirement.

If you would like advice from a local, highly-qualified, fee-for-service financial adviser or if you would like a review of advice you have previously received elsewhere, then please give me a call on 0411 484 464 to organise a complimentary appointment.

Cheers,

Daniel