How to choose the right financial adviser

How to choose the right financial adviser

Joseph Darby

7 tips to find the right financial adviser for you

Recently released research by the Financial Services Council suggests that a NZ financial adviser is worth the impressive sum of $1.5m over 25 years to every person they assist. If you haven’t already received the backing of an adviser, what better time than now?

The Financial Markets Authority has developed some initial questions it suggests you ask when selecting a suitable financial adviser. We have improved upon this by the addition of some insider secrets, tips and questions. These include:

1. Avoid advisers with a limited range of solutions

"If all you have is a hammer, everything looks like a nail" – Abraham Maslow

Insider secret:

Many financial advisers have a surprisingly narrow range of solutions available, often tied to their employer.

What you should do about it:

Before you even set out, ask yourself the following questions:

  • If you see a stockbroking financial adviser, do you think they’ll suggest you invest in property (real estate), an annuity, a managed fund, or something else?
  • If you see a financial adviser employed by a bank, do you think they’ll suggest you use a non-bank solution? The same goes for advisers employed by major and even mid-sized institutions, and
  • If the adviser works for a property investment company, do you think you’ll receive any meaningful suggestions to do anything other than invest in more property?

Of course, the answer to all the above questions is nearly certainly “no”, which means you should probably avoid these people, and seek out those who have a range of solutions.

2. Do they “practice what they preach”?

This could be the most important thing on the list.

Insider secret:

Many financial advisers don’t practice what they preach. Worse still, some are in an inferior financial state to you!

Example: If you want to get fitter and healthier, would you be wise to listen to an overweight or obviously unhealthy personal trainer? – of course not! You wouldn’t have to seek out Usain Bolt or an All Black to train you, though you’d surely want to see someone who is at least on a good pathway of health and wellbeing.

What you should do about it:

Ask about the advisers’ personal finances – this tactic is surprisingly under-utilised.

Questions you ask could be about the advisers’ own:

  1. Investment portfolio(s) and performance
  2. Personal financial statement or summary
  3. KiwiSaver provider
  4. If they have any, their personal insurance policies. If so, what types and who is the provider?
  5. What financial mistakes have they ever made, and what they learned? (If they say none, run a mile, as no one is perfect!)

In the modern age of online fraud and cybercrime, the adviser shouldn’t be emailing you such info or providing account statements etc – but at minimum they should be willing to show you proof online and/or talk through their own approach. Such a talk might include any differences between what they may recommend you do, and what they do in their own financial life, e.g. a 40 year old adviser would surely be unwise suggesting the same financial approach the adviser takes to a 70 year old couple!

3. Does the adviser make sense?

“If you can't explain it to a six-year-old, you don't understand it yourself” – Albert Einstein

Insider secret:

It’s no secret that the financial world is like law or medicine – there’s a lot of jargon. In any of these fields, some experts might be too inattentive to explain things you might not first understand.

You might be speaking with a genius, but if they can’t explain things in a way you understand, what use is anything they’ve got to say to you?

What you should do about it:

Make sure you understand things in simple terms.

Ensure that any advice you receive is clear and concise. Any adviser giving it should check to make sure you’re comfortable with it before proceeding and be willing to modify the approach if needed.

4. Is the company trustworthy?

Insider secret:

Some financial services companies aren’t what they seem. Many are owned by product providers, for example:

  • NZ’s biggest single financial advisory firm has more than an 80% shareholding from one of the country’s largest financial institutions.
  • One of NZ’s biggest mortgage brokers is owned by a bank.

What you should do about it:

Do your homework on the company the adviser works for.

Ask the tough questions, and ensure you clearly understand any conflicts of interest.

5. Is the adviser for you?

Insider secret:

Let’s split this into two pieces:

  1. The first is more of a tip than a secret – many people look for a financial adviser who’s just like them. In some cases, this works well, and helps build rapport and understanding, but it can backfire too. Let’s say you’re a 63-year-old couple looking for both an investment-focussed financial adviser and separately for a lawyer. What happens if you choose professionals roughly your age? Thinking ahead, within a few years it’s reasonable to expect both will be retired - which is probably the last thing you want!
  2. Secondly, many self-employed advisers work alone, (are self-employed) or might run a little office with one or two administrative staff. This can be a problem for clients when the adviser encounters health trouble, goes on a lengthy holiday, or has an unexpected life event – perhaps even gets divorced and needs to sell some or all of the business – which might mean “selling” your custom as a client to someone else!

What you should do about it:

Related to the two sub-points above:

  1. In this example, give some serious thought to finding an adviser and lawyer younger than you are, who should be working as long as you might need them, in this case at least the next couple of decades. That way you won’t be forced to change to a younger pro as your mature one ‘leaves the game’.
  2. Without writing off all self-employed advisers, you’ll want to be comfortable with the systems and processes the adviser has to deal with some of the situations explained above.

6. Will they listen?

Insider secret:

Some advisers might not listen to you and are just trying to sell you something. More still might avoid tough conversations, perhaps because they don’t want to upset you, or are too focussed on selling you something!

What you should do about it:

Ensure you’re being heard.

If a tough conversation topic comes up, be open minded and thankful the topic was raised! Or, make it clear from the start that you’re only interested in a limited scope of advisory services.

7. Check their remuneration

Insider secret:

Most advisers receive some sort of commission, volume quotas and bonus, or might even have some of their “pay at risk” – that is, they lose pay if they don’t hit certain financial targets.

What you should do about it:

Clearly understand how your adviser is paid. They should be willing to openly discuss this, not just leave the answers to your questions buried in a lot of disclosure information!

The bottom line: how to choose a financial adviser

Keep the tips and questions above in mind when you select a financial adviser and you might end up with an even better result than the recent research showing a financial adviser is worth about $1.5 million!

Our salaried advisers are standing by to comfortably meet and exceed expectations in all these areas. Get in touch today.

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