Financial Planning

What to Consider Before Taking Financial Advice

To assist in your financial planning needs, you may wish to engage the help of a Financial Adviser. A Financial Adviser is a licensed professional who is able to provide personalised financial advice, best suited to your financial needs and circumstances. Unfortunately, many investors have been lead astray by bad or negligent financial advice, and have consequently suffered devastating financial losses. Read on to find out more about what you should consider before taking financial advice in order to obtain quality financial advice.  

Why should I take Financial Advice?

The purpose of obtaining financial advice is to assist you in achieving your financial goals through the recommendation of the best investment strategies available to you. Financial Advisers have more experience and knowledge than your average investor, and are therefore better equipped at guiding you toward your financial goals and how you can achieve them.

Financial advice can help you:

  • Set and achieve your financial goals
  • Gain more control over your finances
  • Plan for different stages of your life (such as before starting a family, or before retirement)
  • Protect your finances and assets
  • Minimise and avoid expensive mistakes

Personal Advice

For personal advice, Financial Advisers take into account your personal situation before making any recommendations. A Financial Advisor will therefore ask you questions about yourself in order to develop a profile on you as an investor. The more accurate your depiction is of your current situation, the more equipped Financial Advisors become in providing the best advice to match you personally. Therefore you want to take some time to reflect upon your personal circumstances before meeting with any Financial Adviser.

Some questions to ask yourself before meeting with a Financial Adviser:

  • How much money do I have available to invest?
  • How much money do I need to pay off my debts and expenses?
  • How much risk am I prepared to take?
  • How long do I want to invest for (i.e What is my time horizon)?

Costs of Financial Advice

Before deciding whether you want to take financial advice, it is best to know the costs associated with receiving the advice and whether you are willing to bear these costs.

Financial advice can be either a once-off event or ongoing. Once-off advice may involve a recommendation on a specific issue, such as superannuation. Ongoing advice involves regular reviews with your Financial Adviser to continually monitor and review your financial position and investments. The costs for ongoing advice are greater than once-off advice. In the event that you should not proceed with any recommended investments or strategies, you are still expected to pay for the Financial Adviser’s cost of preparing your recommendations.

For ease of comparison, and to avoid any misunderstandings, ensure that your Financial Adviser states any costs in dollar figures, rather than as a percentage of investment required.

Professional certification

It is best to check that your Financial Adviser’s has the necessary qualification and experience to give financial advice, which can be checked via ASIC’s Financial Advisers Register. The Register also allows you to verify that your adviser is not disqualified or banned from giving advice, therefore protecting yourself from acting upon any negligent advice.

Track record/performance history

You can find out about your Financial Adviser’s track record by simply asking them. Obviously the more success the Financial Adviser has had in generating a return, the most incentive you have to listen to their financial advice. However, if your Financial Adviser says they can guarantee you a return, they have infringed upon the law. The law prohibits Financial Advisers from guaranteeing returns. If what your Financial Adviser says appears too good to be true, is it best to err on the side of caution.

Client Base

Before taking advice, you should consider the type of clients that Financial Adviser works with.

Does your advisor work with other clients like you? For example, if your adviser’s client base primarily consists of younger clients, and you are nearing retirement, this advisor may not be the best choice for you.

Review the financial advice before taking further action

After you have met with your financial adviser, you should receive a formalised copy of:

  • Statement of Advice (SOA): Which outlines what the financial advisor recommends and why they believe it is suitable for you.
  • Product Disclosure Statement (PDS): For each recommended product, there should be a PDS which describes the product’s features.

You should ensure that you understand both these documents before you agree to anything.

If you are unsure, feel free to ask your adviser to explain and clarify any uncertain points. Most importantly, before you agree to anything you should ensure that any advice given was in light of your financial position and circumstances, and that it will help you to achieve your financial objectives and goals.

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