Date posted: 24/08/2017 6 min read

How to identify a trusted adviser

Advisers who are members of a professional body must adhere to certain standards and rules around professionalism and ethics.

In Brief

  • Many financial planners hold a diploma, not a degree.
  • It’s prudent to choose an advisor with ten years of experience across an array of investments, markets and strategies.
  • Advisors who are members of a professional body must adhere to certain standards and rules around professionalism and ethics.

I’ve long had a major problem with my industry that anyone who has “earned” a diploma in as little as eight weeks can hang out a shingle and call themselves a financial planner. 

I recently posted a flowchart meme on social media on one of the things you should look for when choosing an adviser – ie a degree – that drew a storm of criticism from old style advisers. A ‘meme is a simple, sometimes humorous idea in picture form spread online. A meme is not meant to be complex and can never convey the full range of important issues you should consider when choosing a trusted adviser. 

Many old-style advisers lacking a degree were infuriated at what they saw as an over simplification and an attack on their personal professionalism, which I suppose it is. 

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The essence of any professional relationship is trust. It is a state that cannot be qualified or compromised. It either exists or it doesn’t exist.

A part of me regrets that because I know there are good people who don’t have degrees. However, another part of me sees a degree as a step our industry as a whole must take if it wants to be and to be perceived as a profession by consumers. 

Young advisers who hold a degree expressed clear support for the message the meme conveyed. Professionals from other industries who saw the meme were dismayed that under the current rules advisers didn’t already need a degree. They were unaware most advisers only hold a diploma. 

The meme is based on three points.

  1. Time poor consumers faced with a bewildering array of advisers to choose from need criteria they can use to rule out some advisers in what is a difficult decision process.
  2. All professions the world over require their members to hold a degree as a minimum standard of entry into the profession. 
  3. In a few years all Australian advisers will legally be required to hold a degree. So the debate has already been won and lost.

What to look for in an trusted adviser

Doctors, lawyers, accountants and engineers hold degrees. Every professional the world over holds at least a bachelor’s degree, many have a master’s degree. Financial planners should be no different. Diplomas (or advanced diplomas) just don’t cut it. 

As chartered accountants we understand that professionals need a professional qualification. In financial planning there is an alphabet soup of supposed designations but look for three recognised qualifications -  CA-FP, CPA-FP or the CFP (Certified Financial Planner) designation.

 

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Members of a professional body adhere to a mandatory code of ethics and professionalism. If they are CAs, CPAs or CFPs you have the confidence they will adhere to those bodies’ professional and ethical standards.

There really is no substitute for experience. Employing a young adviser who is learning and making all their mistakes on your finances would be a courageous move. Ten years of experience across an array of investments, markets and strategies is probably best. 

In addition to experience, you also want an adviser who specialises in the area that relates to you. If you’re a high net wealth client with various structures (SMSF, trusts, etc) then you don’t want a generalist adviser, you want a recognised expert. As an accountant, you also want an adviser who understands what accountants want and need. 

Personal chemistry with any professional is incredibly important – you won’t click with every adviser. It can be an intimate relationship and you need to feel comfortable trusting your adviser with your most confidential financial information over many years, potentially for the rest of your life. It goes both ways – in my firm after meeting prospective clients we only offer our services to people we know we’d enjoy working with. 

There really is no substitute for experience.

It’s a sad fact but the vast majority of advisers are tied to one of the four big banks, AMP or Macquarie Bank. If you walk in their door there is a good chance you will be sold those firms’ products on those firms’ platforms whether or not it’s the right strategy for you. Even some so-called independent advisers have their own products that they will encourage you to invest in. So before you choose an adviser ask who they are tied to and if they will advise you into their own products. 

A final thing to look for is how an adviser is remunerated. In the bad old days, institutions paid advisers large commissions to flog their products. Happily (but worryingly) today that only still occurs in life insurance. Commissions may be largely gone but asset-based fees are still widespread. My advice is simple – seek advice from an adviser who will give you a transparent, fixed fee quote up front before you commit to anything. 

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So remember, when choosing an adviser, consider their education, professional qualifications and memberships, their experience and their area of specialisation. Also ensure the chemistry is right, check any allegiances and their remuneration set up.

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