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Choosing a financial adviser (based on information from New Zealand Financial Markets Authority – FMA)

Your financial adviser should be a long term partner to help you to achieve your goals.  As a result, deciding who your financial adviser should be is an important personal matter.

Your friends or colleagues may refer you to their financial adviser.  Make sure that the adviser can fulfil all your needs.  A referral is a good starting place, but it is still important to do your research.

The NZ FMA has developed some questions that you can use when you meet with a financial advisers, and they offer some ideas about what to listen for. If you are receiving personalised investment advice, you should be able to find some of this information in an financial adviser’s disclosure statement. You can compare disclosure statements from different advisers.  But remember, as this will be a long term relationship, you need to ensure that you like your adviser as well.

Before choosing your adviser, ask financial advisers as many questions as you need to until you’re confident you completely understand how they can help you and that you will be comfortable working with them.

It is vital that you are comfortable to ask them any question at all about your financial situation without hesitation.

What type of Financial Advice

Q: What type of financial advice or financial planning service do you provide?

Listen for: Does the adviser provide class advice or personalised advice, or are they just giving you information only? Personalised advice is tailored to your personal situation, whereas class advice is suitable for most people in a group or class. See the FMA’s information and the different types of advice to help give you a better understanding.

What Financial Adviser type

Q: What type of financial adviser are you?

Listen for: AFA (Authorised Financial Adviser). An AFA financial adviser has been licensed, and is monitored  by the Financial Markets Authority.  There are currently 1854 AFA’s in New Zealand.

A QFE Adviser works for a Qualifying Financial Entity and in general can only provide you with advice on their employers financial solutions. There are around 26,000 QFE Adviser/Employers at present.

If they are a RFA (Registered Financial Adviser) individual, or work for a registered financial adviser entity, (but are not an AFA or QFE) they are not licensed or monitored by the Financial Markets Authority. There are around 6500 Registered Financial Advisers at present. Registered individuals can give you personalised advice on simpler products such as insurances, mortgages and term deposits. Registered individuals or entities can provide you with ‘class’ or generic advice on investment products such as KiwiSaver or managed funds.

Find out more about types of financial advisers and kinds of financial advice.

Q: Do you have any financial adviser qualifications?

Listen for:  An AFA is required to meet a minimum level of competence set out in their Code of Professional Conduct, to report to the FMA annually and has a National Certificate in Financial Services or equivalent qualification.  QFE Advisers and RFA financial advisers are not required to have any qualifications.

Does the Financial Adviser Put Client’s Needs First

If you are looking for personalised financial advice, consider asking:

Q: What information will you need to be able to provide me with financial advice that is tailored to suit me?

Listen for: Your financial adviser needs to get to know you to be able to work along side you.  Therefore, a good financial adviser should be asking you lots of questions about your circumstances and needs. To be able to do a really good job, the adviser should ask about your income and expenses, what you own and what you owe, your dependants and your financial goals, retirement and long term goals, but also your short term goals.  Your financial adviser will also need to know about your appetite for risk if you are making some investments (including KiwiSaver). The financial adviser should discuss your insurance needs and things such as estate planning or business succession planning if these topics are relevant to you.

Q: How will you deal with a range of different financial objectives for my individual goals?

Listen for: A financial adviser will talk to you and ask questions that will help you to prioritise your financial objectives.  The adviser will explain and discuss choices with you and develop a strategy to help you achieve your objectives.

Q: Am I a retail or wholesale investor?

Listen for: Wholesale investors are defined in the Financial Advisers Act and can include entities such as family trusts. If you are going to be considered as a wholesale investor, your financial adviser needs to explain what a wholesale investor is and whether/why you are regarded as one. Wholesale investors have less protection than retail clients, so you need to understand the implications of being a wholesale investor. You can opt out of being a wholesale investor if you wish.

If you are looking for generic or ‘class’ financial advice, consider asking:

Q: What ‘class’ or group of investors is your advice suitable for?

Listen for: If you don’t want personalised financial advice, you may be happy with general information so that you can decide what direction to go in.  To do this, you need to ensure that the ‘class’ advice that you are receiving is relevant to you. Ideally the class advice is intended to people similar to you, for example with the same age group and risk tolerance.

A description of the general characteristics of people like you with similar circumstances and requirements. This is sometimes referred to as your ‘class’ or group that your adviser has taken into account to advise you, e.g. your age group and tolerance for risk.

Does the Financial Adviser have Reasonable Fees

Q: How is the financial adviser paid – via fees or commissions? How much is the financial advice likely to cost?

Listen for: Does the financial adviser have a combination of remuneration models?  Is there a fee for a financial plan, an annual retainer fee?  Is there a fee based on the assets that the financial advice is based on.

Is there an implementation fee?  Is that a dollar fee or a % fee?

Does the adviser only receive commission from providers?  If you are receiving insurance advice, in New Zealand it is most common for commission to be paid by the insurer to the adviser for providing services to you.  AFA’s are required by law to disclose how much commission they receive, but at Moneyworks, we believe that all advisers should share that information with you.  This information should be in a % basis and ideally written down in a $ basis.  The commission that is paid is not additional to you, but in some circumstances, an adviser might be able to reduce their commission which may lead to a reduction in the premiums to you.

If you have KiwiSaver, most advisers will receive a ‘trail commission’ from the KiwiSaver provider that they have introduced you to.  This is usually a small payment of 0.20% or 0.25% per annum.  Therefore, if you have $10,000 invested in your KiwiSaver for a year, your adviser will receive $20 or $25 for that year.  This is a payment to assist them with being available to answer your questions and provide advice to you.  A small number of KiwiSaver providers pay higher commission to the adviser, some KiwiSaver providers are not available for advisers to work with.

Q: If your financial adviser charges ongoing fees, what will you get for these fees?

Listen for: The best relationships with financial advisers and their clients are when they meet on a regular basis to review your circumstances and financial solutions to make sure that they are still working appropriately for you.

If you have an investment portfolio, your financial adviser should be reviewing your portfolio and considering whether your portfolio needs re-balancing on at least an annual basis.

If you are paying ongoing fees, you should expect to have reasonable access to your financial adviser when you need questions answered or want to discuss a financial issue with them, and they should schedule regular reviews with you.

Professional Standards for financial advisers

Q: How do you keep up to date with changes that might affect your clients?

Listen for: AFA’s (Authorised Financial Advisers) have a legal requirement through the Code of Conduct to participate in ongoing professional development.  QFE and RFA financial advisers do not have these requirements.

Is this financial adviser a member of an industry organisation such as: Institute of Financial Advisers (IFA), Professional Advisers Association (PAA), or Society of Independent Financial Advisers, or Finsia (Financial Services Institute of Australasia).  These industry organisations are likely to also have professional development requirements for their financial adviser members.

Q: Do you have to abide by a professional code of conduct?

Listen for: AFAs (Authorised Financial Advisers) should tell you about their Code of Professional Conduct. Here is a link to the current code Code of Professional Conduct for Authorised Financial Advisers. This code sets out the minimum standards of competence, knowledge and skills, ethical behaviour and client care for AFA’s.  It also specifies these financial advisers continuing professional training requirements.  AFAs can be disciplined for breaches of the Code.

QFE advisers do not have to follow the Code but their QFE employer should have established systems and procedures at an equivalent level to the Code.

Registered financial advisers (RFA’s) are not required to follow a code of conduct.

What kind of Professional Experience does the financial adviser have?

Q: How long have you been giving financial advice?

Listen for: Assisting people with planning and managing their financial future requires life experience and where possible, experience in providing financial advice.  However, if new advisers were not brought on and trained up, then the industry would die out.  Therefore, you may meet a newer adviser without extensive experience.  This shouldn’t be a problem if you get on well with them, are comfortable in their presence AND if they If they y receive supervision or oversight from a more experienced colleague or their employer.

Q: What type of clients do you mostly see? What are the majority of your clients trying to achieve?

Listen for: It’s helpful if the financial adviser deals with people in a similar situation to you, for example, young families, retirees or small businesses, as they will have experience in the type of advice you are looking for.

Q: What products do you advise on? What will happen to the products I’m currently invested in?

Listen for: Is the financial advisers product range restricted to a certain type of product (eg insurance only) or is it limited to products from a small number of product providers (eg their employers products)?

Is the financial adviser aligned with one product provider only?

Can the adviser compare and recommend different products? A bigger range of products can mean more choice for you. This could also be important for any existing products you have, such as your KiwiSaver fund or managed funds.

Can the financial adviser provide advice in relation to your current funds or investments, for example, even if it is not on their approved product list? If they are recommending dis-investment from any products you currently hold, make sure they tell you what the risks and benefits are in doing this.

Q: How do you establish a client’s tolerance for risk?

Listen for: There are a number of factors that need to be incorporated in working out a clients risk tolerance.  These include the use of a risk profiling tool as a starting point, (for example, a comprehensive questionnaire to assess clients’ tolerance for risk (also known as a risk profile).)  But a good financial adviser should also understand your experience with finances and how you feel about money to finalise your risk tolerance or risk profile.

The financial advisers Dispute Resolution processes

Q: How do you deal with customer complaints or disputes?

Listen for: A clear description of their internal process for handling customer complaints. A financial adviser must also belong to an external dispute resolution scheme if financial services are provided to retail clients. The name of the dispute resolution scheme will be in the adviser’s disclosure statement.