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How to choose a financial advisor


Financial advisors are an underutilised resource in Australia. It’s not uncommon for people to think that financial advisors are solely reserved for the mega-wealthy or people who are looking to manage multiple investment portfolios and assets. But that’s not quite the case; just about anyone can benefit from a consultation with a financial advisor and developing a comprehensive future financial plan.  And although it’s never too late to start, the younger you consult with a financial advisor, the sooner you’ll be able to start building long-term wealth and making preparations for your financial future. But with so many options out there, it can be a daunting process.  We’ve put together some of the key information you need to know about how to choose a good financial advisor.

How to choose a financial advisor in Australia

Choosing a financial advisor to work with can be a complex process.  After all, you’re not just entrusting them with a basic short-term budget or savings plan — a financial advisor works with you to provide you with a holistic financial plan to achieve your lifelong goals. So it’s important to know what to look for when choosing a financial advisor before making your final decision.

First and foremost is ensuring that the advisor has all of the appropriate licensing and professional credentials. But in truth, that’s only scratching the surface. If you’re wondering how to choose a financial advisor, there are 10 questions to ask.

  1. How much experience do you have as a financial advisor?
  2. What sort of fees do you charge?
  3. How do you charge clients? (e.g. fee for service, commission from outside parties)
  4. Do you offer advice beyond investing?
  5. What sort of personal investments do you have?
  6. Are you backed by a financial institution or are you an independent financial advisor?
  7. What sort of financial plan and products do you provide?
  8. Do you have expertise in specific areas of financial planning?
  9. Is the business a member of the Association of Independently Owed Financial Professionals (AIOFP) or Association of Financial Advisors (AFA)?
  10. How will I benefit from using your services?

Some of these may seem slightly personal, brusque or intrusive — but in truth, financial advisors are professionals who are very comfortable talking about money.  A financial advisor that’s going to offer you the comprehensive service that you need will be willing to discuss any of these points with you. For example, here at Financial Spectrum, we offer a free financial strategy session for people who are new to the process to help determine whether we’re a good fit for your needs.  You can book online or submit an enquiry to find out more.

A good financial advisor will understand that these questions are about determining whether they can give effective, unbiased advice that will make a difference to your future. If they can’t or won’t answer these questions openly, it’s a good sign that you should walk away. Besides, if they’re not interested in answering these questions, then it’s unlikely they’ll invest the time to really understand you on a deep level.  This will limit the degree to which they can tailor a financial plan specifically to your needs and you could end up with a generic, “cookie-cutter” financial strategy.

Working with your financial advisor

Once you’ve decided which financial advisor is best for your particular needs, it’s time to have an initial consultation. Some people aren’t sure of their long-term goals when they first meet with a financial advisor, and it’s fine if you’re not certain. Part of a financial advisor’s role is to help you work out what matters to you and your family and what you’d like to get out of life. However, it is good to come prepared with detail of your current income, expenses, investments, debt, savings habits and some broad ideas around the following:

  • Where and how you’d like to live in the future
  • Family plans and what you’d like to provide your children
  • How much you’d like to travel
  • Businesses, hobbies and interests you’d like to pursue
  • Your desired retirement age

Subsequent sessions will involve modeling different scenarios so you can clearly see the impact of different decisions. For example, buying a home versus investment property; or sending your children to public or private school.  You will be able to make decisions with clarity and confidence, and it will enable your advisor to tailor a financial plan to your needs.  As an outcome, you should expect a comprehensive, tailored plan that will enable you to achieve all you want to out of life.

FAQs
How do I know if I need to see a financial advisor?

Just about everyone can benefit from seeing a financial advisor. It’s an excellent way to work out how to achieve your future goals and make effective decisions around major life events. Seeing a financial advisor can often be particularly pertinent if you have a big event on the horizon — purchasing of your first house or investment property, the arrival of a baby, or preparing for retirement. In all of these events (and many more) consulting with a financial advisor can be extremely helpful.

I’m wondering how to choose a financial advisor — how do I find a trustworthy one?

When you’re choosing a financial advisor in Australia, it’s often worth starting with your family and friends.  They may have previous experience working with one and be able to provide you with success stories — and in some cases, who to avoid, too. More broadly, it’s worth investigating their qualifications, licence and fee structure when meeting with them to ensure that they’re reputable.

How do advisors charge for their services?

Financial advisors either charge for their services upfront or are paid via commission.  As a general rule, we recommend financial advisors who charge upfront fees rather than receiving commissions.  This is largely because commissions tend to be paid by specific financial institutions or on specific investment products, which can create a conflict of interest.

What is the difference between a financial planner and a financial advisor?

“Financial planner” and “financial advisor” are simply two different terms for a professional who offers a range of financial services.  This can sometimes lead to misunderstandings among the public — however, they’re the same thing.

What should a financial advisor know?

In practical terms, a financial advisor should be able to consider every aspect of your life when constructing a plan, including your current financial situation and your short, medium and long term goals. For example, would you like to start a business, spend a year in France, or retire by 50? One of the key benefits that financial advisors can offer is that they remove emotion from money-related decisions.  This enables them to look at your current situation versus your long-term goals in a more neutral fashion, helping move ahead with confidence.


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