What are the benefits of financial planning and good financial advice?
Financial planning and financial advice can help you manage your finances more effectively so you can achieve your financial goals.
Financial planners can provide advice on all aspects of your finances.
By developing a framework for you to manage your finances financial planning can help you:
- protect yourself and your family with personal insurances
- protect your business against your ill health or injury
- ensure you have an adequately diversified portfolio of investments that is designed to reflect your personal risk profile and achieve your goals.
- invest in a range of sectors, asset classes and fund managers to generate an appropriate regular income for you in retirement.
- review your changing needs as your circumstances change
Most importantly, by working with a financial planner and financial adviser on an ongoing annual basis, you can review your progress towards achieving your goals, and make sure that you understand how all your financial solutions work for you and your family.
Financial advice is regulated by the FMA
Financial advice is regulated by the FMA. Those providing financial advice are required to be licensed by the FMA as a Financial Advice Provider or operate under a Financial Service Provider licence issued by the FMA. It’s our job to ensure that they are following rules, including putting your interests first. Read more about how the FMA regulates financial advice.
Financial Advice Providers can recommend or provide opinions on financial products such as KiwiSaver, mortgages, insurance, shares, or cash investments. This is different from just describing how financial products work, which isn’t financial advice.
Some advisers might be able to give advice on a wide range of financial products, while others may advise on certain products only – such as mortgages or insurance.
Financial Advice Providers can include:
- Personal financial planners and investment advisers
- Mortgage advisers (sometimes referred to as mortgage brokers)
- Insurance advisers
- Staff at insurers and banks who provide financial advice
Financial advice can also be provided digitally. Digital or 'robo-advice' is automated advice generated by a computer program using algorithms, based on the information you provide. Only a few providers currently offer digital advice in NZ but it’s an area that’s growing internationally.
A Financial Advice Provider must have their own licence or be covered by a company that has one.
All licensed Financial Advice Providers must comply with new duties that ensure they:
- Are qualified and competent to offer advice
- Put your interests first
- Properly explain what kind of advice they’re able to give
- Explain how they’re paid
Choosing a financial adviser
(based on information from New Zealand Financial Markets Authority – FMA)
There are a number of ways you can choose a Financial Advice Provider. The key is to know what you want to achieve from that advice, then do your homework to make sure you choose a Financial Advice Provider who meets your needs.
What do you want from financial advice?
Think about what you want to achieve from financial advice – is it help with an investment plan, getting a good deal on a mortgage or sorting out your personal insurance? This will help you decide which licensed Financial Advice Provider you seek financial advice from.
Financial Advice Providers are only licensed to offer advice on areas they are competent in and they must tell you this upfront.
How to search for a Financial Advice Provider
The Companies Office keeps a Register of Financial Service Providers (FSPR) where you can find all licensed Financial Advice Providers and the financial advisers who work for them, if any. To check who a financial adviser is engaged by, or to see a list of financial advisers engaged by a Financial Advice Provider, enter their name on FSPR to see the details of their registration.
You can find lists of advisers on various professional adviser association websites, such as Financial Advice New Zealand or the Insurance Brokers Association. You can also talk to your existing financial services provider to see what they might offer.
Referrals and personal recommendations
Many people find an adviser through a referral from friends or family. You should still do your own homework and ask questions from the adviser to make sure they’re right for you.
Your friend or family member is likely to have different financial objectives to you, and if they’ve only recently taken advice, it’s hard to tell whether an adviser has done a good job. Often this isn’t clear until years after the advice has been given.
It’s a good idea to ask your adviser for examples of how they’ve successfully helped people similar to you.
What to think about when choosing an adviser
Prepare to meet a few different advisers and ask yourself the following questions to help decide who will best meet your needs:
- Did the adviser explain their experience and qualifications to you?
- Did the adviser explain what type of licence they have? – They might be working under the licence of a Financial Advice Provider
- Did the adviser indicate the type of products they can advise on? - Some will specialise in certain areas and they must tell you about their scope of service.
- Did the adviser tell you how they are paid? Is this from fees you pay or from commissions paid by the companies whose products are being sold to you?
- If you’re making an investment, did the adviser explain where and how your money will be held?
- Did the adviser outline how you can complain if there’s a problem? Did they indicate which Disputes Resolution Service they are part of.
Working with your Financial Adviser
(based on information from New Zealand Financial Markets Authority – FMA)
All advisers must follow the new Code of professional conduct for Financial Advice Services.
The code says an adviser must:
- treat clients fairly
- act with integrity
- have competence, knowledge, and skill,
- give suitable advice, and ensure it’s understood properly. They must also protect client information.
The code also covers the competence, knowledge and skills that advisers must show. View the Financial Advice Code website: the official site for the code of professional conduct for financial advice services which is maintained by the Code Committee, New Zealand's independent standard setter for financial advice. You may also wish to read more about how the FMA regulates financial advice.
What good advice looks like
When providing advice, you should expect the adviser to:
- talk to you about your personal situation so they understand your circumstances and goals
- talk through their recommendations, explaining why they think these are right for you
- explain how they’re paid
- explain how their complaints process works and tell you who their dispute resolution service provider is.
What advisers may ask you
To get the best advice tailored to your needs, an adviser may request information from you about your:
- personal situation, age, employment, family, and relationships
- assets, such as your home, savings, KiwiSaver, car, shares, or other investments
- debts, including mortgages, loans, and credit card debt
- income from all sources, including pay, investments, and benefits
- expenses (every week or month)
- insurance policies and how much you're insured for
- estate plans, such as a will or power of attorney
- details of lawyers or accountants
You should expect financial advice to be explained to you in plain language and advisers should be happy to answer your questions so you fully understand your options.
All advisers should outline the scope of service they’re providing, a record of your wishes, and explain how you will pay for the service.
Think About Your Situation
Do some advance thinking about what you want to achieve and what your priorities are. The more preparation you do, the better the advice you’re likely to get.
Take a close look at your financial situation (where relevant to the advice you’re seeking). For example, if you want a full financial plan on a range of issues you could start by working out:
What you own – assets including your home, superannuation, car, shares or other investments and personal property
Who owns what – for example, are assets owned personally, jointly or in family trusts
What you owe – debts including mortgages, loans and outstanding credit card balances
Income and expenses – the Sorted website has budget calculators that can help
What insurance you have and how much cover.
If you’re looking for specific advice on only one issue, you will only need to prepare information relevant to that issue.
Provide relevant and full information
Give your adviser accurate information. Sometimes your adviser will need very detailed information, especially when giving retirement planning advice. This is because they’ll have to consider tax and government retirement entitlements as well as your retirement needs. Your adviser should tell you what information to provide to them before your in depth discussion, such as savings account statements, superannuation account statements and pay slips.
If you are not completely honest with your adviser or don’t disclose something you don’t see as relevant, you could get the wrong advice. Tell your adviser if you can only give limited or incomplete information. They need to know if they have only part of the picture.
If you’re only looking for general advice, your adviser should only ask you for basic information to determine which general group of customers you belong to. You will not need to give full information about yourself if you are only getting general advice.
The first or second meeting is a good opportunity for you and the adviser to have a discussion about investment risk. This is sometimes called risk profiling and helps the adviser understand how much investment risk you are willing to accept. Based on the information you provide, the adviser will need to recommend what type of investment is suitable for you based on your risk profile.
Read the Paperwork
When you receive your financial or investment plan, make sure that you read it before you agree to anything. Be prepared to set some time aside to go through the advice carefully. It might help to review the advice in stages, beginning with the overall strategy and then moving on to the detail.
Don’t be shy about asking questions. Advisers are required to put your interests first and explain the options clearly. Remember that it’s your money and your future. The adviser has only made recommendations that you can accept, reject or ask to be varied. Ultimately, the decision rests with you.
Consider the advice
At the end of your first meeting (sometimes it will take a couple of meetings to explore different options), your adviser may go away, do some further research and put together some recommendations. Your adviser must talk you through any recommendations and clearly answer your questions.
If you are receiving personalised investment advice, your adviser must put any recommendations to you in writing and talk them through with you as well.
Your adviser will also give you a disclosure statement.
Moving Your Investments and/or Insurance
Sometimes your adviser may recommend switching existing investments or insurances. If so, make sure you understand the reasons and the benefits, and any disadvantages to you. Ask how many different products your adviser sells and who makes those products. Ask your adviser whether they have compared products made by different product providers. Find out any costs involved in making the switch.
Your adviser may suggest moving your current investments to their preferred administrative platform (a master trust or wrap service). Again, check you will benefit from making this change and whether there are fees for making the switch and how the on-going fees compare to your current arrangements.
When You Will Need On-going Advice
If you don’t have a lot of time or adequate expertise, or if you don’t feel confident managing your own investments, getting on-going support from an adviser can be a good idea.
Review Your Plans Every Year
Review your plan at least once a year to ensure it is still right for you. You may be able to check this yourself. If you want advice, check how much your adviser will charge to do this review for you and what the fee includes. Then you can make an informed decision about whether you want to initiate any reviews or if you’re happy to leave it up to the adviser to decide on the frequency of on-going reviews.
When Things Change
Between reviews, keep an eye on whether there are major changes in your circumstances, the market or your investments. There can also be changes to laws that affect superannuation or other entitlements. If you’re not sure what these changes mean or whether they will affect you, you can talk it over with your adviser. If you agree to on-going support from your adviser, they should be able to keep you up to date and contact you when changes need to be made.
Saying No to On-going Advice
Your financial affairs might be quite simple. In retirement, you may feel comfortable managing your own investments most of the time. If you have enough time and know-how, you may not need to pay an adviser for on-going service.
It’s up to you whether you want or need on-going service from your adviser.
You still have the option of getting advice in the future if your circumstances change.