Choosing a Financial Adviser: The Register Check, the Fee Model and the Advice Document
The letter from the solicitor arrives on a Tuesday. It is about an estate, it is mostly about forms, and somewhere on the second page there is a number that is larger than anything you have had to make a decision about before. A week later a friend hands you a business card at a barbecue. Their adviser has been “fantastic”, they say, and is happy to have a chat. Maybe it is not an estate for you. It might be a redundancy payout, or a super balance that has quietly become the biggest asset you own. Either way, you now have money that matters, and a stranger who would like to help you with it. I have a rule for this situation, and it comes from years of reading data before reading the summary. Read the register before the brochure. Before the first meeting ends, you want three things settled: whether this person is on the Financial Advisers Register, exactly how they are paid, and what the advice document they give you has to show.
When you might need one, and when you might not
The first question is whether you need a financial adviser at all, and it deserves an honest answer rather than a sales one.
It helps to separate two kinds of advice. General advice is information that does not take your own situation into account: a fund’s newsletter about salary sacrifice, a seminar on retirement income, most of what you read online. Personal advice is advice that does consider your circumstances, your goals and your money, and recommends what you should do. Personal advice on investments, super and life insurance is the territory of a registered financial adviser.
Not every question needs the full service. Many super funds offer advice to their members, sometimes on a single topic such as contributions or insurance inside super. Some advisers will give one-off advice on one question rather than a comprehensive plan. Moneysmart’s guide to the cost of financial advice covers both of these, alongside full advice with ongoing fees. For some people, at some stages, the right answer is that they do not need an adviser yet, and nobody should feel embarrassed to reach that conclusion.
It is also worth checking whether the question is really a financial planning question. If what is worrying you is how a payout will be taxed, or how to structure the paperwork at the end of the financial year, a tax accountant may be the person to see first. If the decision is really about a home loan, refinancing or how much you can borrow, that is the work of a mortgage broker. A financial adviser can still be part of the picture, but you will get further if you start with the specialist your question belongs to.
Check the Financial Advisers Register
If you do want personal advice, the first check takes a few minutes and costs nothing. The Financial Advisers Register is a public list, and Moneysmart explains what it holds and how to use it.
For each adviser on the register, you can see details including where they work and who they work for, their qualifications and training, the professional memberships they hold, and the kinds of financial products they are authorised to advise on. That last field is the one I would look at hardest. An adviser authorised to advise on super and insurance may not be authorised to advise on other investment products, and the register tells you which is which.
The register also does something more basic. According to Moneysmart, if a person is not listed, they cannot legally give you personal advice about investments, super and life insurance. So if the person on the business card does not appear, the conversation can end there, however good the barbecue reference was.
There are two limits to keep in mind.
First, the register does not cover everyone who has ever been banned. Moneysmart notes that advisers who were banned before 31 March 2015 and who have since left the industry are not on it. To cover that gap, it points readers to ASIC’s banned and disqualified register as well. Searching both takes a couple of extra minutes, and I would treat it as part of the same check.
Second, Moneysmart is clear that ASIC does not check the information on the register before it is published. That does not make the register unreliable, but it does make it a starting point rather than a guarantee. If the adviser tells you something about their qualifications or authorisations that does not match what you see, ask about it.
In spreadsheet terms, the register is a lookup. You put in a name, and you should get back a row that agrees with everything the adviser has told you. If the row is missing, or the cells disagree, you have learned something important before spending a dollar.
How they are paid
This is the part where most of the confusion lives, and where the quiet costs tend to sit. Moneysmart sets out the main ways advisers charge, and it is worth knowing the names before the first meeting.
The fee types Moneysmart lists include:
- a Statement of Advice fee, for preparing the written advice
- an implementation fee, for putting the recommendations into action
- a fee for service, a set amount for a defined piece of work
- an asset-based fee, calculated as a percentage of the money the adviser is advising on
- an ongoing advice fee, for continuing advice over time
- a review fee, for reviewing your situation at set intervals
- an hourly rate
- insurance commissions, which an adviser can receive on some life insurance products, but only with your consent
You may not meet all of them. An adviser might charge a fee for the Statement of Advice, then a fee to implement it, then an ongoing fee. Another might charge an hourly rate and nothing else.
The asset-based fee deserves particular attention, because a percentage is easy to misread. A small-sounding percentage of a large balance is a large amount, and it repeats every year the arrangement continues. Moneysmart’s guidance is that where an adviser charges an asset-based fee, it must also be shown as a dollar amount. Ask for that figure, and look at it.
My suggestion is to go one step further and ask for every fee as a dollar amount, for the first year and for the second year. The first year often includes one-off costs, such as preparing and implementing the advice. The second year shows you what the arrangement costs once it is running. Put both columns side by side. If an adviser cannot or will not give you those numbers, that tells you something as well.
It also helps to ask a plain question: is there anything else I will pay, to you or to anyone else, as a result of your advice? The costs of any products you are recommended, and any insurance premiums, can sit on top of the adviser’s own fee, and you want to see all of them before you agree to anything.
The Statement of Advice
Personal advice is set out in writing, in a document called a Statement of Advice. It is the document you will be asked to agree to, so read it before you sign anything that puts it into effect.
Before you get that far, you should be given a Financial Services Guide. This is the adviser’s introduction on paper: who they are, what services they offer, and how they are paid. Read it first. It is shorter than the Statement of Advice, and if the fee section in the guide does not match what you were told in the meeting, it is better to raise it then.
When the Statement of Advice arrives, read it the way you would check a formula you did not write. Does it describe your situation the way you described it? If you said you wanted to keep a certain amount accessible, or that you were uncomfortable with a particular kind of risk, those points should appear. Advice built on a different set of facts from the ones you gave is advice for someone else.
Then look at what it recommends. If it recommends a product, it should tell you what that product is and what it costs, along with the adviser’s own fees. If it recommends moving money out of one product into another, look for a clear explanation of why, and what you might give up by leaving.
You are allowed to take it home. You are allowed to ask questions about any line you do not understand, and to ask again if the first answer did not help. If you are being hurried to sign on the day, that is worth noticing.
Ongoing fees and saying no
If an adviser offers an ongoing arrangement, with continuing advice for a continuing fee, it comes with rules that work in your favour.
Moneysmart explains that an adviser needs your written consent each year to keep charging ongoing fees. When you give that consent, you should be told in writing what services you will receive and how often. So each year there is a natural checkpoint: did you get the reviews, calls and advice that were promised, and is the arrangement still worth what it costs?
You can also end the arrangement at any time. You do not have to wait for the anniversary, and you do not need a reason beyond deciding it is no longer for you.
I would put the anniversary in the calendar the day you sign. When it comes around, compare what you were promised with what actually happened over the year before you renew. Make it a short table if that helps: the services listed in last year’s consent down one side, and next to each one, whether it happened and when. A review meeting that was promised twice a year and happened once is a fact you can raise. So is an ongoing fee that kept being charged while the phone calls stopped.
Saying no does not need to be a confrontation. A short written note that you do not wish to renew, or that you are ending the arrangement, is enough to start the process, and it gives you a record of the date you said it.
Red flags
None of these proves something is wrong on its own, but each one is a reason to slow down and ask more questions.
- Pressure to move your super quickly, before you have had time to read the advice or ask about what you would give up.
- Fees described only as percentages, or in vague terms, with no dollar amounts.
- Recommendations that all point to products from one provider, without an explanation of why those products suit you.
- A name you cannot find on the Financial Advisers Register, or details that do not match what the register shows.
- Reluctance to put things in writing.
If you are unsure, you can stop. Nothing about choosing an adviser has to be decided in a single meeting, and a good one will expect you to go away and think. Meeting two or three advisers before choosing one is a reasonable thing to do, and asking each of them the same questions makes the answers easier to compare.
Name, Number, Dollars
Three checks, in order. The name: look the adviser up on the Financial Advisers Register, and on ASIC’s banned and disqualified register, and make sure what you find matches what you were told. The numbers in the paperwork: read the Financial Services Guide, then the Statement of Advice, and check that the advice is built on the figures and goals you actually gave, and that it shows what each recommendation costs. The dollars: ask for every fee as a dollar amount, for year one and year two, and remember that ongoing fees need your written consent each year and can be stopped at any time. A good adviser should be comfortable being checked on all three. If one is not, that is worth knowing before you sign anything.
This article is general information only. It is not financial advice and does not take your personal circumstances into account.
Sources: Moneysmart, Financial Advisers Register (https://moneysmart.gov.au/financial-advice/financial-advisers-register); Moneysmart, Financial advice costs (https://moneysmart.gov.au/financial-advice/financial-advice-costs)