The area of professional financial advice has seen immense change over the past decade, both from a regulatory and consumer perspective.
Technology advances have democratised the investing space and made markets much more accessible to all. At the same time, the professional financial advice space has seen increased scrutiny, culminating in vastly increased education and experience requirements to hold the title of a financial adviser. Given the convergence of these two structural changes, it is an ideal time to look at the value proposition of engaging a professional financial adviser.
What can a financial adviser do?
The role of a quality financial adviser in your life can be summarised succinctly. Their role is to find out exactly where you are at now, discuss with you where you want to get to (i.e. what your lifestyle and financial objectives are), and then map out a plan to get you there.
You may, of course, decide that you only want advice on a specific element of your financial situation, and that is completely your choice, but financial advice does work best where it encompasses your overall situation. It is worth noting that financial advisers are obligated by law to act in your best interests.
Financial advice is about so much more than just investing money
A financial adviser can provide you with advice on so much more than just investing money. A financial adviser can be a coach and adviser in all aspects of your financial wellbeing. If appropriately qualified, an adviser can provide you with advice in the following broad areas, discussed below.
For many people, especially those who are younger, the most important asset they have is their ability to earn an income. The next step is to use this income wisely to create an asset base. An adviser can help you set a budget to establish your surplus cash flow, which can then be utilised to create a regular investment plan. An adviser can also map out how your cashflow currently looks, and how it will look post the adviser’s recommendations.
Australia’s superannuation system is complicated, and its complexity has only increased over the last decade. A financial adviser can help navigate the superannuation system to optimise your outcomes with contribution advice, retirement income stream advice, and, of course, recommending the right product and investments for you.
In addition, you may wish to retire before the age that you can access your superannuation (60 for most people). In this instance, an adviser can work out the right structure to accumulate wealth in (super Vs non-super) to ensure you achieve your goals.
There are so many ways a financial adviser can add value in the retirement planning process – from providing clear savings rates to aim for to meet your objectives, to optimising the tax concessions available to you.
Quality financial advice can map out a plan to ensure you have the best possible chance to meet your retirement objectives.
Step 1 – Work with you to map out your goals and objectives, including prioritisation of these
Step 2 – Analyse and research your position comprehensively
Step 3 – Create a set of recommendations to present to you to show you the path to achieve your goals
Step 4 – Implement these recommendations
Step 5 – Review these recommendations to ensure that, as your situation changes, or the world around you changes, your plan reflects these changes
Debt management advice is a great example of how advice needs to be reviewed over time. As interest rates move up and down, the economics of repaying, and borrowing, money changes as well. Tax-deductible (i.e. for investment purposes) and non-deductible (i.e. for personal purposes) debt changes the picture again. A financial adviser can help you understand your position and create a strategy to optimise your position.
Personal insurance advice
Even the best plans can be derailed by an illness or injury. Personal insurance exists to help mitigate this risk. An adviser can add value to the process by working with you to ascertain what and how much insurance you need, how to best structure your cover, and by researching and recommending suitable products for you. They can also help strike the balance with what you can afford.
Aged care rules are relatively complex, and dealing with them comes at a time when things are generally stressful. An adviser can work with you, and your loved one, to explain the process from a financial perspective, help you understand your options, and finally recommend a course of action that optimises your position.
Centrelink advice covers many different types of payments and strategies. An adviser can work with you to help you understand what you might be eligible for and strategies that may help maximise any available entitlements. This includes forward planning to structure your affairs to optimise future entitlements.
Succession advice involves detailed discussions with you, and your business stakeholders, to consider and map out a plan for, the future of the business. The aim of the process is to provide certainty and clarity for all stakeholders around the fate of business management and the business's assets.
Structuring advice aims to see you hold assets in the right structure or combination of structures for you, balancing all the pros and cons, and of course, keeping your objectives at the forefront.
Using discretionary trusts and self-managed superannuation funds (SMSFs) are two examples of more formal structures that could be considered, but equally important can be the mix of super and non-super assets, or holding assets in a lower risk spouse’s name.
Tips for selecting an adviser
It is all about the three Es – education, experience, and ethics.
Becoming a quality financial adviser starts with having a good education base. Understand what your prospective adviser’s qualifications are, and how these qualifications relate to their ability to provide you with the advice you need.
You wouldn’t let someone perform neurosurgery on you without knowing they had done it many times, and successfully, before. Financial advice is the same. Experience isn’t simply a matter of years under the belt, it’s what an adviser has done with those years and what experience they have, or can perhaps draw on within their firm, to provide you with the advice you need.
This is a difficult one to judge, but you should get a sense your adviser wants to help make your life better. Do they focus the conversation on understanding you and your goals? Do they give examples of outcomes they’ve been able to achieve through quality advice? Do they listen to you? Do they take the time to explain concepts with you to ensure you’re following the conversation and learning as well?
Finding and engaging a good financial adviser is about making sure you’re comfortable with the person. Make sure you know how they intend to charge you, and how much before you agree to proceed. It is also worth knowing any affiliations they have, for example, with product providers. Don’t be afraid to ask questions, and don’t be afraid to interview a few different advisers to make sure you find the right one for you.
When you find someone you trust, give them as much detail as possible about your life and your aspirations. Quality financial advice is tailored to you, and the more your adviser knows, the better the advice will be.
One more thing…
The firm your adviser works for is also important. How does the firm reward advisers? Does the firm support the three Es discussed above?
HOW CAN RSM HELP?
If you have any questions about financial advice, get in touch with your local RSM expert.