Wealth With Purpose

How to choose a great financial adviser

A potentially risky yet more often beneficial thing you can do with your money is finding a great financial adviser. I say risky because there is no shortage of stories of people who visit someone holding themselves out to be a financial adviser only to lose their life savings.

In Australia there is the now famous case of Storm Financial, appropriately named to be sure. Storm Financial was a Queensland based firm that leveraged their client’s portfolios to a huge degree. In many cases they took a loan out against an individual’s primary residence, deposited the cash into a margin loan, and then borrowed against that further, what we call “Double Leveraging”. It is claimed that they did this irrespective of the client’s age, and known capacity for risk. Well, the Global financial crisis brought their gearing strategies unstuck and many of their clients found themselves completely broke. It was tragic and could have been avoided.

I say beneficial, because a good financial adviser, can be a great sounding board, coach, and someone to hold you accountable for your financial decisions. They will also help you structure your affairs tax effectively, help you build a solid investment portfolio and get you on track.

So the question is, how do you find a great one?

Below are my tips for finding a great adviser:

  • People you know: Ask around amongst trusted friends if they know somebody reputable and competent. Find out how long they have been using that person and why they think that he/she is any good.
  • Are they financially successful themselves? Do you really want to take advice from someone who doesn’t have any money of their own? I didn’t think so. It may be difficult to find this out but worth looking into. I have personally met advisers who have no money to their name or are complete spendthrifts. I don’t know how you can give people advice if you don’t practice what you preach.
  • You get what you pay for. Nothing worthwhile comes for free. A decent adviser will charge a fair price for the work involved. How much you should pay will depend on your circumstances such as how much you have accumulated, how much you earn and how complicated your situation is.
  • Are they a flash Harry?
  • Their Business Model: this is worth looking into. How do they make their money? Is it by transactions or is it by an ongoing fee for service. I have worked in both models, and the transaction model does not work for the end customer, you! Transaction models encourage high turnover (think taxes and fees) and often are more risky. A fee for service model on the other hand where you pay a known fee on an ongoing basis is likely to foster a strong relationship between you and the adviser and reduce product or investment bias.
  • Avoid commission based advisers.   It is important to be clear here what I mean. I don’t object to advisers earning a good income, after all they are stewards of people’s life savings which is a grand responsibility. However commissions are likely to distort the advice that you get.
  • Not too little, Not too much….. How much experience have they had handling client portfolios. I would advise against using anyone with 5 years or less experience. Let them make mistakes with somebody else’s money, not yours.   This is generally less of an issue in large institutions which can stand behind the advice, but you don’t want an inexperienced adviser in a one man band.   It may surprise you that I don’t recommend people that are too close to retirement themselves. Not all, but many of these people have lost interest, they don’t stay up to date with the rules and regulations and they may be more interested in their own retirement than yours! Furthermore if you are in your 60s or older you want an adviser that is likely to outlive you and perhaps will be with you until the day you drop off the perch. The best advisers are likely to be aged 35-50 and have 10 years experience.

Below are some questions to ask them in your first meeting with them. A good adviser should be able to answer these questions without hesitation and with confidence.

  • How long has your business been going?
  • How long have you been giving financial advice to clients?
  • How many clients do you have?
  • How often will I hear from you?
  • How do you manage risk in client portfolios?
  • How do you charge for your advice?
  • What type of clients do you typically look after?
  • How did you communicate with clients during the global financial crisis?
  • What sort of returns can I realistically expect from your advice?

I was always fascinated by our few questions people asked. Most people either took an instant liking or disliking to you, such is human nature. You need to allow for this ‘chemistry’ element, but make sure you don’t use it is an excuse not to do proper due diligence. Some people look good, sound good, but under the surface there is not much there. Remember the money you have is really God’s, and he has asked you to be a good steward of it.

Getting good quality financial advice can be a great way to get started on your financial journey. They can put you on the right track, educate you, and help you to understand the risks associated with investing, reduce taxes, and focus on the big picture.

Remember no one is perfect, but a good, well-rounded financial planner will probably be a blessing to your financial situation.

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