How to choose a financial planner...

Here are 5 very important considerations when selecting a financial planner.

1. Many financial planners are paid via the receipt of commissions from fund managers, insurance companies and dealer groups. Receiving a commission creates a conflict of interest. Firstly, commission-based planners only recommend investment products that pay commissions. There are some excellent investment products which don't pay planner commissions (e.g. some passively managed funds). Secondly, planners may be compelled to recommend products which pay higher commissions. If you want advice that is in your best interest then you need to ensure your financial planner does not have any conflicts of interest.
   Recommendation: Insist on a commission-free planner.

 

2. Many financial planning firms charge clients a fee based on a percentage of funds you have invested with them (often 1% of assets invested). This isn't a lot different from taking a commission as it still creates a conflict of interest. For example, what if the best advice after someone receives a large cash inheritance is to repay their home loan? The advisor might want to suggest the client invests the inheritance because that will increase their fees.
   In addition, is a percentage fee really a good measure of value added by a planner? For example, if you have $1 million of assets invested, you will pay the planner $10,000 per year. If you have $500,000 invested the fee would be $5,000 per annum. Is there really twice as much work involved with managing a $1 million portfolio versus a $500k portfolio? Unlikely!
   Recommendation: Insist on fixed fees to preserve independence and ensure value for money.

 

3. Many financial planning firms (particularly the large ones) are owned by the big banks, insurance companies or fund managers. This can create a conflict of interest as the planner might be obliged or incentivised to sell the owner's (bank's) products. In addition, all financial planners work off an approved product list which is a list of products they are allowed to sell. Often the product list is dominated by the owner's products. An independently owned financial planner has more flexibility to choose which products and fund managers it wishes to deal with – without any pressure or influence.
   Recommendation: Find out who owns the financial planning firm you deal with to ascertain if there's any potential conflict of interest.

 

4. Most financial planners are prohibited (by their licensee) from giving advice about investing in direct residential property. Therefore, if you have approached a financial planner for advice on which asset classes to invest in (i.e. property, shares, fixed interest, etc.); most are not able to provide a balanced assessment of all asset classes. It's a bit like a doctor who can only prescribe one type of medication. Let's remember that direct property is the biggest asset class you can invest in. The value of the world's property exceeds the value of world's stock markets. How can you call yourself a financial planner if you are not allowed to even consider one of the largest asset classes?
   I am not suggesting that everyone should invest in direct property. However, if you are seeking investment advice, it is important that the person providing the advice can, if they see fit, consider and recommend all asset classes. If you are restricted from giving advice about property or don't have a good knowledge about property investment, how can you recommend one asset class over another? To draw an analogy, I can't conclude that a Ford car (as opposed to a Holden) is the best car for you unless I have equal knowledge of the strengths and weaknesses of both Ford and Holden cars. If I don't know anything about Holden cars, how can I say with any integrity that a Ford is better for you?
   Recommendation: Ensure your financial planner can advise on direct property and that they have as much knowledge of property investment as they do on share investment.

 

5. It is unlikely that you can receive financial advice on a matter and not have any questions or concerns subsequent to the provision of advice. In fact, it’s likely that you will need help and guidance with implementing the advice.
   Recommendation: Ascertain what level of ongoing support is available from the financial planner you deal with.

Next step...

Click here to read why you should consider engaging ProSolution Wealth Advisory.

 

A recent client testimonial... “We found something quite different in Justine and the Wealth Advisory team at ProSolution Private Clients. We were extremely impressed with the Global Investment Strategy they formulated for us, which they were able to tailor make to our situation to help us achieve our goals after being told by others it was not possible. After visiting other planners that trot out the typical mantra involving managed funds and seeming more concerned with just collecting their commission, it was refreshing to find a fee for service group that could also advise in wealth creation solutions involving directly owned property. Justine was extremely professional in her manner and always so accessible by phone and email. She really does embody the groups name, as although our situation was quite complex she really did find a solution to all our problems! We have already started to recommend ProSolution’s services to colleagues of ours that also run businesses and want to maximise their wealth creation.” Michael & Kym Gaffney (July 2009)) Read more testimonials

 

Download our special report: What most financial planners don't know will hurt you! Click here...

 

 

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