Financial advice – just who can you trust?
24 Oct 2014
What does financial advice mean to you?
Is it the flexibility to retire when you want? The opportunity to buy your dream house? Being able to put your kids through private school?
Whatever you want to achieve, a financial adviser is there to work with you and put a tailored plan in place to help you reach your goals.
However, if you've been following the news recently, you would have heard that some unscrupulous financial advice providers do not always act in their clients' best interests. But how can you tell good financial advice from bad?
The product-based approach
At the core of the recent scandal involving financial advice from a big four bank, is the perceived conflict between product manufacture and the distribution or selling of the products through their financial advisers. Under this scenario, the 'advice' provided can become secondary to the sale of the product and, for some bank products, a modified best interests duty applies!
This type of advice is what is known as the traditional 'product based' advice model. With around 80% of financial advisers in Australia licensed through the big banks and institutions, this model is very common. Of course not all of these advisers are 'bad advisers', however, as a bank customer, you don't always get to choose the adviser you want to act truly in your best interest.
Advice that starts and ends with you
Another financial advice model is the 'client centric service model'. Under this model, the starting point for providing financial planning advice is you – it puts your needs first and considers issues such as:
- What are your financial goals and lifestyle objectives?
- What do you want to achieve now and in the future?
- What is your investment time frame?
- What is your tolerance to investment risk?
- How much money do you need to do the things that are most important to you?
Your adviser will then look to understand your current position, including what resources you have, and use cash flow modelling to determine whether your goals are achievable. If they're not, your adviser should look at different strategies to put you on the right path to achieving your financial goals, or discuss the alternatives and what trade-offs you are prepared to make now to help get you where you want to be.
Once your cash flow and strategic planning is done, then and only then should you talk through and consider different investment options or products that can be tailored to your individual circumstances and needs. It is at this stage that it is important you understand what relationship exists, if any, between your adviser and the manufacturer of the products being recommended.
Another key point is to make sure you check the qualifications of the person you are entrusting to help you make decisions about money that needs to last the rest of your life.
It's all about you
Ultimately, good financial advice places you first and empowers you to make informed choices about what is right for you. The true value of sound financial advice comes from the peace of mind in knowing that your strategy and investments are the best ones for your individual circumstances and are helping you get to where you want to be.
So are you sure the advice you are getting is right for you? If you have any doubts, simply get a second opinion - after all it's your money and you want to be confident that you are on the right path to reaching the financial and lifestyle goals you have worked so hard to achieve.