How to Choose a Financial Adviser
Every now and then I will field a phone call asking if we charge a fee for our service, or whether we receive our remuneration through commissions.
The person asking this is usually under the impression that a fee model means a completely unbiased approach, imagining that if commissions are in the mix a conflict of interest will impact on advice….
I beg to differ (and so does the law by the way! Oh, and by the way, the law also dictates that all remuneration be 100% disclosed to clients)…
When choosing a financial adviser
Many people compare those who charge a fee versus those who earn commissions. However, this isn’t necessarily the best way to make a decision. I hope in this article to give you a few other important factors to consider.
Fee-based advisers charge a set fee for their services, typically a percentage of funds under management (FUM) and/or an hourly rate for their time. Commission-based advisers earn a commission from the financial products you’d choose to run with off the back of the adviser’s advice. Sometimes you’d get a combination of the two.
There are pros and cons to both fee-based and commission-based advisers. Fee-based advisers are generally less likely to recommend products that pay high commissions. However, fee-based advisers can be more expensive, especially for clients with smaller portfolios.
Commission-based advisers
Commission-based advisers can be a good option for clients who have specific financial products in mind, such as Investment Property, KiwiSaver, Managed Funds, Life Insurance, or Mortgages. Under NZ law, the adviser cannot simply point you somewhere just because they get a higher commission. They may also work with a smaller group of providers.
So, which type of financial adviser is better?
It really depends on the individual client’s needs and preferences. However, comparing advisers by fee vs commission may not be the best way to make a decision.
1. The financial adviser’s success with clients.
This is a very important factor to consider when choosing a financial adviser. Ask the adviser about their track record and how they measure success. You may also want to ask the adviser for references from past clients.
2. How long has the financial adviser’s firm been in business?
A financial adviser’s firm that has been in business for a long time is more likely to be stable and have a proven track record. It also means you’re likely to have a relationship with the individual adviser for a longer period of time. And, when a relationship like this is built on trust, that’s a very important factor.
3. Is the financial adviser walking the walk and talking the talk?
In other words, is the financial adviser independently wealthy themselves? This is a good indication that the adviser knows what they’re talking about and that they’re not just trying to sell you financial products. Is the financial adviser invested in exactly the same financial products that they are recommending to you? Are their structures the same that they are recommending to you?
Why success with clients is an important factor
When choosing a financial adviser, one very important thing to consider is their success with clients. This means looking at their track record of helping clients achieve their financial goals.
You can ask the adviser about their track record in a number of ways. For example, you can ask them what percentage of their clients have met their financial goals in the past. You can also ask them for specific examples of clients they have helped.
It’s also important to ask the adviser how they measure success. For some advisers, success is simply helping clients meet their financial goals. For other advisers, success is helping clients achieve their financial goals while also minimising risk.
Why longevity is important
A financial adviser’s firm that has been in business for a long time is more likely to be stable. It also means that the firm has a longer track record of success.
When a financial adviser’s firm has been in business for a long time, it means that the firm has survived through different market conditions. It also means that the firm experience.
Why it’s important for the financial adviser to be independently wealthy
If a financial adviser is independently wealthy, it’s a good indication that they know what they’re talking about and that they’re not just trying to sell you financial products.
An independently wealthy financial adviser is more likely to be objective in their advice. They’re also more likely to be able to give you advice that is in your best interests, even if it doesn’t generate a lot of commission for them.
Additional tips for choosing a financial adviser
- Ask for recommendations from friends, family, and colleagues.
- Interview multiple advisers before making a decision.
- Make sure the adviser is licensed and registered.
- Ask the adviser about their qualifications and experience.
- Be sure to understand the adviser’s fees and how they are compensated.
- Ask the adviser about their investment philosophy and how they make investment decisions.
- Make sure you feel comfortable with the adviser and that you trust them.
Conclusion
When choosing a financial adviser, it’s important to consider more than just their fee structure. You should also consider their track record of success with clients, how long their firm has been in business, and whether they are independently wealthy.
By considering these factors, you can choose a financial adviser who is likely to help you achieve your financial goals.
Choosing a financial adviser is an important decision. By considering the factors discussed above, you can choose an adviser who is likely to help you achieve your financial goals.
Here’s to your success!
Daniel Carney
Financial Adviser
Goodlife Financial Advice
Goodlifeadvice.co.nz