Financial adviser considerations
There are 3 things to consider whether a financial adviser may be worth while or not. Whether we have the time, the knowledge, or the willingness to do it ourselves.
1/. Do you have the time?
We are all busy people, juggling many different priorities. Do we have time to analyse our own financial situations on top of that? This is not something that requires a quick analysis either. If we want to successfully analyse our current financial scenario and make plans for the future version of ourselves, this takes a lot of time. If we do not have the time, we need a financial adviser.
2/. Do you have the knowledge?
We may have the time to run our numbers, but may not have the necessarily knowledge. If we do have the time, we may decide to educate ourselves to gain the required levels of knowledge. We can do this by many hours of reading. If we do not have the knowledge, or are not willing to gain the necessary knowledge, then we will be best to get the help of a financial adviser.
Some situations are much more complex than others too. We can gain a lot of information from books and blogs, but sometimes we may need personalised advice tailored for our situation.
3/. Do you have the willingness?
We could have both the time and the knowledge to look after our finances, but we may lack the motivation. If so, then we would be well suited to hiring a financial adviser.
If we aren’t motivated to do it ourselves, then we need someone else to analyse our financial situation on our behalf.
There are two other occasions where you may need an adviser even if you do meet the above three criteria.
An adviser or coach can also be useful if we need some motivation or confirmation. We may have the necessary time, knowledge, and willingness to make our own financial decisions, but we may just need a bit of a push or some support. If we are lacking motivation, having someone encourage us and give tips to press on can be very helpful. To have someone confirm that we are on the right track can also be nice. We may have an idea, but to have confirmation from a professional is very reassuring to our plans.
We must fit all criteria in order to effectively manage our money. If we are lacking in one of the criteria, then it may be a good idea to hire a coach/adviser.
WHEN WOULD A FINANCIAL ADVISER NOT BE SUITABLE?
1/. If your budget is tight, I probably wouldn’t recommend an adviser. Wait until you have some more room in your budget. If budgeting is your only concern, then there are plenty of volunteer budget advisers in New Zealand, that won’t cost you a cent. Your budget must be in deficit, or close to $0 to receive this service though.
2/. You are in consumer debt and on a low income. Again, the last thing you want is to be spending money on an adviser. Make use of the free financial mentors in the community
3/. If you have adequate time, knowledge, willingness, motivation and confidence to manage your own finances.
Everyone needs to manage their money. If we are not in debt, or budget deficit, the question is whether we do it ourselves or hire an adviser. This all comes down to whether we believe the adviser will bring us more benefit than they cost.
With the right advice, some advisers can save us hundreds of thousands of dollars. A good adviser should save/make you more money than the cost of the service.
HOW ARE FINANCIAL ADVISERS PAID?
Not all advisers are made equally so do your research before committing.
Some are paid by other companies to sell us products such as insurance or investment assets. These advisers are known as commission-based or fee-based.
Others are paid by the client only. They are not there to sell anything and there is no conflict of interest. These are Fee only advisers. Be careful not to be confused between fee-only and fee-based. There is a substantial difference in how they are paid.
ALL advisers are required to have disclosure statements, so if we need any of this information we can ask for it before getting started.
TYPES OF FINANCIAL ADVISERS
For personalised advice, there are two main types of advisers in New Zealand. An Authorised Financial Adviser (AFA) or a Registered Financial Adviser (RFA).
Both need to be registered on the FInancial Services Provider register. Here you can find out if a company is registered to be an adviser or not.
Both need to have a compaints scheme. If we have a dispute with our adviser and can't solve it, all advisers are a member of the complaints scheme and as a client we have free rights to lodge a complaint.
Both must exercise care, diligence and skill
Both are licensed, monitored and supervised by the Financial Markets Authority (FMA)
Both must have a disclosure statement that states their contact details, what type of adviser they are, what services they offer, as well as the registered number. AFA's are held to more stringent guidelines.
AFA's disclosure statements must provide more information than a registered adviser. Including information on how they are paid, if there are any conflicts of interest and if they have any criminal convictions to name a few.
AFA's have additional responsibilities to their authorisation and to the disciplinary committee. This includes more scrutinised business and reporting obligations. AFA's also have a duty to put their clients needs first under the code of professional conduct. RFA's do not undergo the same scrutiny or requirements. This doesn't mean an RFA is not reliable, it just means their advice and business has fewer regulations, compliance checks and financial consequences than an AFA. If you use an RFA make sure to do your research.
An AFA requires a higher level of education than an RFA.
RFA's can only advise on category 2 products such as loans, insurance, and general personal finance. Only an AFA can advise on category 1 products such as investments. If you want investment advice or investment based planning, then only an Authorised Financial Adviser will do.
HOW TO CHOOSE A FINANCIAL ADVISER?
Most advisers offer a free introduction of about 30 minutes. This time is to determine if the adviser is a right fit for us and our goals, if we trust them, and if we feel like they can help. A good adviser should also be honest at this point if they cannot help us, as well as answering any questions we have.
Good questions to ask an adviser may include:
How do you make money?
How many clients do you have? Too many clients may mean less personalised service, but it also means they are popular.
What experience do you have?
What areas do you specialise in? If you have a specific question such as retirement or college savings, ideally you would go to an adviser that specialises in one of those fields, rather than a generic adviser.
What services do you offer? It would be nice to get all your needs met by one company, but not always possible. Find out at the beginning.
Tell me about yourself? This question is all about getting to know an adviser on a personal level. You are entrusting them with a lot of your personal information, and you need to know you can trust them and form a good relationship.
Everybody needs planning, but not everyone needs a planner. If we have knowledge, time and willingness, motivation and assurance, we can do it ourselves. Otherwise, a financial adviser can prove to be a profitable investment.
Knowing the best use for our money is critical. If we are missing just one component, I do recommend using a financial adviser. Finding one that is a good match that we can trust, can be a great thing for us and our finances. Make use of the free introductory meetings to find a good match and someone that has your best interests in mind.
A good adviser should always have your best interests as a priority, and this will naturally result in a mutually beneficial relationship where they get paid and you get back much more than you put in. You don't want to feel like just another number. Financial peace of mind can be a well worthwhile expense.
We get check ups for our cars and our health, why are we so reluctant to do the same for our finances?
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here.
Comment below. What are your experiences with financial advisers? Are there any other questions you can add that may be helpful for people looking for the right fit?