Financial planners / advisors take into consideration your personal needs and objectives to design strategies.
Ideally, they will work with you to design a budget and cash flow forecast, and give you handy savings and investing tips. Some may even have specialist knowledge in the following areas:
- Insurance
- Investing
- Taxation
- Superannuation
- Estate planning
But between allegations of fraud, deceit, misconduct and cheating, and the immense cost of seeing a financial planner, it can be a daunting exercise.
Here are some tips for meeting with a financial planner.
1. Do your homework
This is the single most important tip I can give you. Yes, you are going to see a financial planner because you need or want help. But educating yourself on the basics and preparing yourself intellectually is paramount to a successful experience.
Well done for getting this far.
There are loads of free resources available on the Internet, which can help you get the most from your experience with a planner. If you are interested in self-managed superannuation funds (SMSF), for example, we have a put together a quick write-up here. For a comprehensive knowledge bank, look at these sites:
- MoneySmart.gov.au: it has loads of free calculators, educational articles, and more..
- ato.gov.au/super: provides an overview of the superannuation system, with a particular focus on taxation
- ato.gov.au/Calculators-and-tools/check-your-super/: This page helps you track down lost superannuation
- asx.com.au: go here for the latest market announcements, the sharemarket game and some educational services
- fpa.org.au: the website for the leading body on financial planning in Australia
My advice is to carefully consider how any strategies you read apply to you. Write them down and take them to your planner.
2. Ask them how much — and how — they charge you
Most — not all — financial planners do their job for the money, not the love of it. Some may charge a flat fee ($200 to $500 per hour), which is my preferred measure. Now, you may be saying, "bloody hell, $500 per hour!". But let me tell you, that's FAR better than the alternative…
Sometimes, you may not even pay your planner upfront but the planner receives commissions for recommending products (e.g. insurance) or services (e.g. investments). The problem does not always lay in the product itself but the process for picking those products and services.
For example, if a planner on commission has the choice between a product which, for illustrative purposes, is a '9/10' for you personal situation, they may receive $200 per year as a commission. Alternatively, another product may be a '6/10' and they get $400 per year as a commission. Which do you think the planner would go with?
Here is the kicker: If they both improve your personal situation, there is nothing against them taking the second option.
Don't be afraid to ask your financial planner why they can't recommend something. For example, if you go into a bank and all you get is strategies that use that bank's products or services, that financial planner may not be optimal for you. You can walk away.
3. The 3e's: Experience, education and ethics
It is not easy to be a good financial planner. Recent changes to legislation mandate continuous training, higher education levels, experience and adherence to a code of ethics. However, some planners can operate under the licence of others if they hold basic qualifications like a diploma. That's okay by me — I'd take trustworthiness over education or experience any day. However, it would be better if your planner has signed a code of ethics, holds a related degree and has experience, wouldn't it? Don't be afraid to ask for proof of the 3e's.
4. Are they qualified to give tax advice?
Not all advisors are qualified to give tax advice. Sweeping changes from the Tax Practitioners Board means some advisors may not be able to design tax-effective strategies. It was a tough introduction for aspiring planners but a step in the right direction nonetheless. Ask your planner if he or she is qualified. Be prepared, you may also have to meet with an estate planner (for wills, trusts, etc.) and a tax accountant for some strategies.
5. SMSFs
On the investing front, SMSFs are surging in popularity. And for good reason. SMSFs, while seemingly complicated at first, can be extremely tax effective vehicles to grow your wealth. They work in a trust structure and attract a discounted rate of tax (15%). That makes them useful for high and low income earners. But they don't have to be expensive. Less than $1,000 can get you started. Contrast that with the fees incurred inside your superannuation at the bank or in your industry fund — it could be bucket loads cheaper for just a little more effort. Ask your planner if it works for you.
Foolish Takeaway
We, here at The Motley Fool, specialise in investing in shares — and we are bloody good at it, if I do say so myself. But the gates of sharemarket investing are only open to those who have enough money to buy investments in the first place.
To get there, you need to take a right at 'good budgeting' street and another right into 'trusted financial advice'.
Do your homework, be prepared and don't be afraid to ask questions of your financial planner. Follow these steps and you'll have started on your path to financial freedom. Once you've done that, sign up to our free investing newsletter below.
