A financial advisor or financial planner is a professional who can help you manage your finances and generally help with estate planning and financial strategy. They should work with you to comprehensively determine your personal financial situation, needs, challenges, behaviors and your future goals, as well as regularly check back in with you to make sure you are on track.
Financial Advisors actually have to deal with some pretty impressive (and increasing) levels of regulation, and are bound in Australia by a fiduciary (legal) responsibility to act in your best interests. Having said that – they are not all the same, and there are still some massive sharks in this industry that you need to be aware of and avoid.
I managed to track down a highly experienced, Not-for-profit financial advisor for a bit of a Q and A and got to ask some hard questions. If you would prefer to listen, check out the Podcast Episode here.
So, does CaptainFI have a Financial Advisor? Read on and find out
This Article is not financial advice, and information is of a general nature only for general education, entertainment and awareness purposes. This does not take into account your personal needs and circumstances. You always need to do your own research to ensure a product or service is suitable for your personal circumstances.
Generally, the FIRE community has a bit of a mistrust of Financial Advisors due to the pretty bad reputation they have got in the past – there is a perception of financial advisors as ‘Cowboys’ who do not act in their clients best interests and just siphon off funds through sleazy commissions and dodgy back door deals. One example is having shitty products on their approved products list which they can then sell to clueless investors.
However, thanks to increasing regulation, proactive professional organisations (such as the FPA and AFA) and a name-and-shame online register published by the watchdogs ASIC, APRA, ACCC and even the ATO, this industry is being overhauled and becoming much more transparent. For example, Commissions are not allowed on financial products anymore (however they still are on insurance products, but this is a works in progress). There is also the rise of many not-for-profit financial counselling services which are becoming increasingly more available for those in need.
Remember, a financial advisor is typically not a tax or business accountant, and these are separate professions and roles. However, they do overlap at times and financial advisors may have similar qualifications. Financial Advisors are also not investing experts, superannuation gurus, lawyers, property investment strategists or managers, insurance writers or fancy fund managers. Good advisors will certainly have a great understanding and working memory of these fields, and be able to provide basic recommendations. Mostly though, Financial Advisors will be working from an Approved Products List within their firm, alongside some common sense in their use. They can typically facilitate or refer you to some of these more advanced financial services if required.
CaptainFI’s experience with Financial Advisors
My experience with Financial Advisors has been overwhelmingly negative. Just to frame this article properly.
- Firstly I was taken advantage of and given poor advice regarding my superannuation from a young age (put into a product with high fees, unnecessary insurance and significantly invested into defensive assets like cash and bonds as a teenager FFS). Luckily I made additional contributions to offset these, and figured out eventually to crank it up to 100% shares (or as close as could be).
- Secondly when I was able to save decent money, I consulted a financial advisor again and was sold a shitty managed fund that consistently under-performed the market by over half! My average returns were 4% – eventually I clued on to this scam and pulled my investments. I was horrified how stupid I was to trust them – they even lied point blank to my face – and it took me to create my own excel spreadsheet to figure the true rate of return as all the glossy brochures were just a false marketing. Eventually I discovered index funds.
- Thirdly when I tried to get into property I almost signed up for a terrible ‘off the plan’ scheme. As it turns out, I wasn’t talking to a financial advisor at all – just a property spruiker pretending to be one! Luckily the deal fell through, and now several years later I have an experienced mentor guiding me through my first build and subdivide.
- Fourthly when my Mother retired, the “independent” financial advisor we saw for peace of mind wanted to charge $3000 to draft a strategy proposal, as well as charging 1.0% of her investment balance (including her SUPER!) as an ongoing advice fee (YUCK!). Luckily she had me to tell him to get stuffed – we ended up withdrawing a lump sum of super to pay off her mortgage and pay for some renno’s, and then sticking the rest into HostPlus super fund – 50% indexed balanced and 50% index international.
So bear in mind that I am probably a bit jaded when it comes to talking about Financial Advisors. I do not currently have a financial advisor and I am just figuring this out as I go along. I am a staunch fan of simplifying your finances with index funds and maintaining a very low cost of living. Because I am quite disciplined this works for me, and I also have a pretty simple personal circumstances. Not everyone will have the same needs and personal circumstances, or have the same level of knowledge or drive that I do when it comes to personal finance.
NB addendum – Since releasing this article and stopping work I have indeed sought out independent financial advice. After all the BS previously encountered, I actually had a pretty positive experience this time
An interview with a Financial Advisor
I was lucky enough to track down a decent, not-for-profit, fee-for-service type financial advisor to ask her some hard questions. Whilst she didn’t want to be named due to her career and professional liability issues, she was happy to go over this topic in great detail with me. Just bear in mind that she is one of the good ones, and not all Financial Advisors are going to be as experienced, knowledgeable or ethical as her. I asked her the following questions and this was her response (p.s. for everyone keen at home for another podcast – YES we did record and YES it will be coming out soon).
Your Background as a Financial Advisor
I am a financial planner and have been working in financial services for 11 years and been a financial planner for nearly 8 years.
I am in my early 30’s, been with my husband for 11 years and we have two children; a 3-year-old and 10-month-old.
A bit about my background; I come from a big fat Greek family. My parents have always been business owners and whilst they never sat me down to show me how to budget or invest, we used to talk about business every night at dinner time.
My first job was when I was 11 years old and I was working in the family seafood business. I was earning $3 an hour and would work 30 hours on Friday night -Sunday. I never got to hang out with friends on the weekend and rarely went to parties.
What this meant was that at 16 years old I was able to buy a new car with cash (and I wouldn’t recommend a 16 year old learning to drive have a new car!) and I was able to pay for my university degree in cash so I have never had a HECS/HELP debt. I have always had savings for as long as I remember and bought my first property when I was 22 years old.
Since I was working in labour intensive roles from a young age, and working every weekend, I knew I wanted to be the first female in my extended family to go to university. That’s where I learnt I was good with numbers when I got a high distinction grading for business statistics. I went on to study a bachelor of commerce to major in finance.
What does a financial advisor do?
In summary, a financial planner helps their clients set goals (and these goals can be financial or non-financial/lifestyle) and then make a plan to achieve these goals.
We typically give advice around cash flow and budgeting, investing, debt management, risk management (insurance), superannuation and retirement planning, and estate planning.
The financial advice process involves a discovery phase where we get to know someone and their starting position, then we go away and design the strategy, we present this advice to the client, help implement it, manage it and review it at least annually.
However unofficially I feel like a financial planner becomes a lot more to a client. I feel like I am almost like a life coach to some clients. If they want a plumber they will call to see if I have a recommendation for them! They come to me first when they have questions that are more suited to an accountant, lawyer or mortgage broker. Sometimes I feel like I am a counsellor helping a couple find a common ground or compromise on certain issues. Whilst I am happy to listen and help with issues relating to finances, there are times where I have had to recommend they see a counsellor for issues that go beyond the scope of my expertise!
What is the process of becoming a financial advisor?
What I did is different to what you do now to become an adviser.
These days you need to have a degree that is approved by FASEA (Financial Advisers Standard and Ethics Association), then you need to do a professional year where you are mentored by a qualified adviser. Finally you need to sit an exam.
In the past you didn’t need to have a degree to be an adviser, and most advisers had a diploma in financial planning. However, I kind of knew one day financial planners would be required to have a degree so I have always tried to have the highest qualifications available at the time.
I had a degree in finance, and towards the end of my degree I whilst I was working I completed a diploma in financial planning, and then went on to do the advanced diploma. Next I became a Certified Financial Planner which again required more study and is a worldwide recognised designation. I have also done extra study and training to specialise in SMSF’s, aged care, and estate planning. After about 7 years of straight study whilst working I decided to take a break but then last year I had to do another ethics subject and exam to meet the new FASEA requirements.
Where to find financial advisors?
Depending on the advice needed, some super funds offer finance advice.
Some of these funds will only offer intrafund advice (advice on the super fund only which is usually part of the membership package) whereas other super funds will offer comprehensive advice and can advise on assets outside of superannuation too.
You can also search for a financial adviser through the FPA or AFA websites. Also talk to friends and family as they may have a financial planner they recommend.
Above everything, you need to ensure the adviser is licenced to provide advice and you can do this by checking the ASIC financial adviser register which lists their qualifications, experience and if there have been any breaches or complaints against the adviser.
What questions should we ask financial advisors?
· Asking them about their experience and who their typical client is.
· What is on their Approved Product List.
A financial adviser will have a list of products they can chose from for recommendations that their licencee has approved. It doesn’t mean they cannot recommend something off the list but there is a process to go through to get an approval to use it. For example, on my APL I have about 30 different superannuation funds including self managed super funds. I have a range of investment products on my list including index funds, active managed funds, ETF’s, direct shares, term deposits, etc. I have a number of retail insurance providers, I can provide advice on annuities, and investment bonds.
· How they get paid; do they get a salary? A bonus? a commission from insurance? (investment commissions have been banned for a long time now).
· and more importantly how the client pays for ongoing advice? Is the adviser happy to provide once off advice or do they only offer advice to people who want an ongoing relationship?
Also, I think sometimes people want to ask how the adviser invests and manages their money but I don’t think this is a question that needs to be asked because financial advice is not a one size fits all approach and the strategy and recommendations will depend on that client’s goals, objectives and personal circumstances which could be very different to the financial advisers. I always use the analogy that a doctor doesn’t need to have had the illness to be able to advise on it. Or a Surgeon doesn’t need to have had a knee operation to know how to give one
What are the typical fee structures for financial advisors?
Again it will depend on the type of financial advice provided.
If you are getting holistic strategic financial advice it might be a fee for service which is usually based on the complexity of the advice and time required to provide the advice.
If it is more investment advice it may be more of a % based fee
If you speak with an adviser from your super fund and they provide limited advice about your superannuation only then it may not cost anything out of pocket as it may be included in the membership fee.
Lastly, if it is insurance advice the adviser may receive a commission from the product provider. You can sometimes pay the adviser a fee up front however it is quite costly to do and then you need to think about each time you need to review your insurance or if you were to claim on it you would need to pay another fixed fee for the time for the adviser to assist.
Are financial advisors acting in our best interests ?
In the past I think this was more of a concern for people however moving forward the industry is doing a lot more to be regulated to get rid of any salespeople. The industry is moving towards being a profession like a doctor, lawyer or accountant. We have a code of ethics and in that code it says we must act in the best interest of each client.
In our code of ethics we also cannot act if there is a conflict of interest. In the past an adviser could provide advice if there was a conflict as long as it was disclosed. These days you cannot disclose and disclaim the conflict away. We simply cannot act.
We also need to demonstrate that the client has understood the advice, and the client has provided informed consent. This means as a client you need to understand the advice that is being provided to you. If you do not understand it, your adviser should be taking as much time as needed to explain it in different ways to make the complex, simple.
You also need to be comfortable with the advice. If you are not comfortable, then express this to the adviser. There are usually more than one option available to a client and if someone said they were not comfortable with one strategy I would work with them to make a strategy that they were comfortable with. Sometimes this is not the best financial decision but we don’t always make decisions based on money. Sometimes there are emotional and personal reasons too.
Lastly, you need to be comfortable with the adviser as a person. You are going to have an ongoing relationship with them and they are going to be asking some pretty personal questions so you need to be comfortable to open up to them so they can provide the best advice to your situation
How are financial advisors regulated?
We are regulated by many different bodies including
· Department of Foreign affairs and trade
· Office of the Australian information commissioner (OAIC)
The main one though is ASIC. We need to be registered with ASIC and be authorised to give advice under an Australian Financial Services Licence (AFSL).
Some of the legislation we need to know and follow includes (but not limited to)
· Corporations Act 2001 (Cth)
· Superannuation industry supervisions act 1993
· Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act)
· Financial Transaction Reports Act 1988 (FTR Act)
· Privacy Act 1988 (Cth), Australian Privacy Principles
· Tax Agent Services Act 2009
If I was to go back and do my time again, I would have studied a law degree as I feel that would have been more applicable to my career than a finance degree as I didn’t go on to become a fund manager. Financial planning as a degree wasn’t available when I was at university.
Have you enjoyed your career as a financial advisor?
There have been pros and cons like any occupation.
The things I have loved is that it has been a fulfilling career where I have helped change people’s lives. As a financial adviser is a privilege to be invited into someone’s life where you find out about their biggest dreams and desires, and also where they confess their most scandalous secrets. The biggest compliment I get is when a client says that they wish they saw me 5 or 10 years ago.
There have also been some incredibly low moments where I have had to help people through traumatic times in their life such as illness and death.
What has your journey towards financial independence looked like?
I feel like it was slow to start with but as time has gone on we have really built momentum in terms of growing our net wealth- even with all the transitional phases such as having multiple children, taking career breaks and working part time. I find it so funny how we are saving and investing more than ever even with two children and the added expenses of a larger mortgage and childcare.
As a Financial Advisor how do you manage your money ?
My situation is a bit more complex to the average person. I do have a family trust as both my husband and I are high risk occupations as we both give advice. We try not to have many assets in our personal name for this reason but as a result we have had to pay fees to set up our structures and also will pay more tax in our lifetime as a result of the asset protection.
In terms of the everyday stuff: on pay day we have an amount automatically transferred into our offset account, and an amount sent to our investments. Whatever is left over is for bills and spending.
We find we don’t need to have a separate bills and splurge account as my husband and I are very aligned with our goals. We have completely joint finances. We don’t have any separate splurge accounts as we don’t make each other feel guilty for spending money.
As a Financial Advisor how do you invest?
We have a core/satellite investment approach. Our core is in index and active funds in an investment bond. The bond has an annual cap on how much we can contribute and invest in it so then we also buy some individual shares for fun in my personal name (given I have been having some career breaks and had lower income some years).
I have had an investment property in the past but personally not interested in this investment asset class.
How has being a parent changed your approach to money?
It has changed in a few different ways.
From a money perspective we have saved and invested more than ever because our social life has changed a lot; more around picnics in the park rather than trying new restaurants with friends.
We also have more goals around volunteer and charitable giving. We have a sponsor child with the smith family for my son and are planning to sponsor a second child for my daughter. I think its so special receiving letters from our sponsor child and writing letters back. I think it is important that my children learn how privileged they are to put some perspective back in their life.
My husband and I also have more desire to reach financial independence by the time our kids are in high school so that we can stop work and have more oversight over their teenage years and provide more emotional support to them during that transitional period of their life. This is what drives me to continue to work full time now whilst my kids are young.
Lastly, from a less money perspective we are more focused on sustainability. We are willing to pay more for things if it is Australian made, or more sustainable for the long term environment. No point in having generational wealth for our kids if there is no planet. I am not saying we are perfect but we are certainly more conscious of our decisions.
How can parents maximise their childcare benefits?
Unfortunately, there isn’t any strategies to really reduce child care fees. It is income tested, and you can’t salary sacrifice your way out of it.
I often hear women say that they wont go back to work as their salary wont cover the child care costs and my response to that I really think it is important for women to have their own money even if it is only one day a week or work. You never know when your partner might not be around anymore and if you have taken years out of the workforce it could be challenging to get back in again.
I think it is also important to remember that childcare as a family expense. It is not the woman’s expense. And parents should be thinking about the longer term benefit of working; there are the adult and social aspects of work, there are benefits like superannuation that many parents don’t take into account with their calculations, and the other thing is that if someone has an extensive gap in their career, it can impact their ability to get promotions later on.
What is your take on private versus public health insurance in Australia ?
I have been exposed to both systems in my time. I had my first child through the public system and private for my second child. I have also had family members use both systems. We are very fortunate to have an excellent public health system in Australia. However, the purpose of the Medicare Levy Surcharge was to encourage those people who could afford private health to buy it to take the pressure off the public system.
Now that I have experienced both (not only for maternity but other health areas) I will always hold private health insurance, especially with my children. I never know what health concerns will pop up in the future that may require it.
What can you recommend for self-education on finance?
I have read a bunch of personal finance books so I know what the general population is reading however I personally find them a bit repetitive and boring as they all preach the same message. The thing to note with books and podcasts is that they are trying to cater to a wide audience, so it is often simplified and generic. They are a good starting point but it should be that; a starting point – These are some of my favorites that come to mind:
· Book: The Wife Dought by Annabel Crabb
· Book: The mother of all jobs by Christine Armstrong
· Book: Fair Play by Eve Rodsky
· Podcast: Women at Work by Samantha Sutherland
· Podcast: Future Women by Jamila Rizvi
· Book: The Life Plan by Shannah Kennedy
· Book: Atomic Habits by James Clear
Personal Finance or Investing
· Podcast: Equity Mates
· Podcast: My Millennial Money
· Podcast: Financial Autonomy
What is your top three tips for someone on the path to Financial Independence?
1. Spend less than you earn
2. Invest in yourself – health and education.
3. Once established in terms of lifestyle assets; avoid the lifestyle creep of buying bigger houses, newer cars; and instead focus on growing investment assets to help you create assets to generate you income to then allow you to meet your goals; lifestyle and financial goals.
Is it possible for readers to contact you?
Pretty much only on Instagram at the moment as semi anonymous on @budgetbossbabies.
Due to my employment contract and financial planning licencing arrangements I had to close down my personal finance YouTube account and can no longer write for companies like Canstar.
Summary of Financial Advisors
I learnt a lot from interviewing BBB about her role as a Financial Advisor with over a decade of experience, and it certainly challenged a lot of my preconceptions and judgement of the financial advisor industry. I have had some bad experiences with crappy financial advisors in the past – including recently when my Mum retired and paid off her mortgage. After learning more about Financial Advisors, I’m going to give it another go and will track one down for a consult and ‘Wealth-health check‘. Rest assured, it will be a fee-for-service type where I just pay for the consult.
So do you actually need a financial advisor? It depends. For most of us it isn’t really necessary – but it can be quite reassuring. We can get away with the ‘good enough’ solution thanks to self education, discipline and being a savvy customer. However, I can see a few reasons why you might want to track down a financial advisor for advice or for emergency financial counselling – such as;
- You are young and inexperienced with no mentor or coach
- You are not confident with your finances
- You are impaired or disabled or acting on behalf of someone who is
- There is a significant change in your personal circumstances, i.e. marriage, birth of children, relationship separation or death in the family
- You have recently come into significant wealth (such as a lottery, large work payout or inheritance)
- You work in a high risk occupation (such as doctor, lawyer, builder, athlete etc)
- You are considering buying a house or an investment property
I personally think the best way of getting personal financial advice is to track down a qualified, experienced, fee-for-service financial advisor who does not charge commissions. That way you know exactly what you are going to get, and exactly what it is going to cost you. As BBB said, to track down a Financial Advisor you can reach out to;
- Your superannuation fund
- Services Australia (Centrelink) website
- Financial Planning Association website
- Association of Financial Advisers websites
- Or even just reach out to family and friends for a personal recommendation.
Just make sure you do your homework beforehand and check the ASIC financial adviser register or MoneySmart financial advisor register to confirm their qualifications, experience and if there have been any breaches or complaints against the adviser.
The irony about the whole situation is that giving good advice isn’t actually that profitable. As I have learned along my journey to Financial Independence, wealth is more about your personal behaviors and mindset, and less about actually investing. Actually, when it comes to investing – less is more. However, a financial advisor might be able to provide you with some additional information, strategies and professional networking opportunities or recommendations tailored specifically to your personal circumstances.
This Article is not personal financial advice, and is of a general nature only for entertainment purposes. This does not take into account your personal needs and circumstances. You always need to do your own research to ensure a product or service is suitable for your personal circumstances.