Basic Search Fields

Top 10 tips for clients of financial advisers

 

In The Circular issue 10, FOS published its Top 10 Tips for financial advisers. Here are 10 practical tips for clients of financial advisers.

1. Take notes of meetings and telephone conversations with your financial adviser

Make sure you record the time and date the conversation occurred, who was present during the conversation, where the conversation occurred, what was said and who said it. This will help you to understand the advice and give you a record to refer to later.

When resolving financial advice disputes, FOS relies on the information provided by both parties. A detailed and contemporaneous note of a conversation with your financial adviser might just come to your aid in the event you have a dispute about the advice you received.

2. Ask your adviser about the services that are available to you and the cost of each service, and then decide which service is best for you

Financial advisers provide different levels of service. For example, they may provide transaction-only servicesi, advisory servicesii and ongoing review servicesiii. They will charge different fees for each type of service.

If you want your adviser to provide ongoing reviews of your financial affairs, ask for this service and ensure that the frequency of the reviews is agreed and recorded in writing.

3. Be realistic about your retirement goals

You won’t be able to earn a low risk $50,000 per annum from $300,000 in retirement savings, for example. So you must be prepared to accept advice to:

  • receive less income from your retirement savings
  • retire later than planned
  • put money towards your retirement
  • take on more risk, or
  • do a combination of the above.

An adviser who says these things is not necessarily providing bad advice. They may need to say them to do their job properly and provide good advice.

4. Provide full, accurate information

Your financial adviser cannot give you suitable advice unless you provide all relevant information about your personal financial situation, your goals and objectives. If you provide incomplete or inaccurate information, you may receive unsuitable advice and could suffer financial loss as a result.

Your financial adviser will record your information on a form (or will ask you to fill out the information on a form). They will ask you to sign this form to certify that the information you have provided is accurate. You should not sign any forms unless you are satisfied the information in the form is both accurate and complete.

5. If you don’t understand something your adviser tells you, ask questions ... and keep asking questions until you do understand

Many clients are fearful of looking silly if they ask questions. However, it’s better to look silly for a moment and be informed than to appear knowledgeable and look silly when things go wrong.

FOS receives numerous disputes where clients say “my adviser is an expert, so I just trusted him (or her).” In many cases, if the client had asked the adviser to provide better and clearer explanations, the dispute would not have occurred.

Remember, the financial adviser is giving you advice about your money and your ongoing financial wellbeing, so don’t be frightened to say “I’m sorry, but I don’t understand what you are saying” or “can you explain what you just said in a different way?”

Finally, if any particular aspect of the advice is important to you, ask the adviser to confirm it in writing (eg “your capital is safe”).

6. Ask your adviser to explain how each recommended financial product works

The purpose of every financial product is to make you more money: some are designed to provide tax savings or maximise Centrelink benefits, but they all aim to do this in different ways. It is important that you understand how every recommended financial product will work to assist you in meeting your financial goals.

7. Don’t agree to invest in any financial products or investment strategies you don’t understand

Some financial products are very complex and can be difficult to understand. Some strategies – such as double gearing strategies or options trading– are also very complex and difficult to understand.

If the adviser hasn’t been able to clearly explain to you, in terms you understand, how a product or strategy will make you money, then you should not agree to invest in the product or to take up the strategy.

If an adviser recommends that you borrow money to invest, ask him or her to show you some examples of what might happen if the investments do not perform as expected.

8. Make sure the SOA is understandable and accurate

Advisers are generally required to give you a statement of advice (SOA) when giving you personal financial advice. The SOA is a written record of the advice you have been given and must be written so that you can understand it.

If you do not understand the SOA, it is likely that you will not understand the advice.
If you cannot understand the SOA or if you think the SOA is not an accurate record of the adviser’s explanation of the advice, tell the adviser and ask for it to be re-written so that you can understand it or so that it is an accurate record of the advice as explained to you.

Take time to consider the SOA and don’t be afraid to ask questions. And remember, you don’t have to accept the advice set out in the SOA. You have paid for the SOA and the advice, so you must be happy with them both before you accept them.

9. Take time to read any documents the adviser gives to you

Don’t sign documents on the same day you receive them. Take the documents home, read them and take notes of things you don’t understand so that you can ask your adviser to clarify these things for you.

10. A self-managed superannuation fund (SMSF) is not for everyone

Trustees of SMSFs must be prepared to actively manage the fund’s assets, make investment decisions and comply with a number of complex legal obligations. Failing to comply with some of these obligations may have serious legal and tax implications.

The costs of establishing and maintaining an SMSF often means it is not worth having one if you have a relatively small amount of retirement savings.

 

Notes:

i  A transaction only service involves your adviser buying and selling financial products on your instructions without giving you advice.
ii  An advisory service includes advice that is tailored to your personal circumstances (which is known as “personal advice”) and advice which is not tailored to your personal circumstances (which is known as “general advice”).
iii  An ongoing review service entitles the client to periodic reviews of their personal circumstances and their investments.

null