Financial planning is a holistic approach to planning for your financial future. Its about setting short and long-term goals and developing strategies to achieve those goals. As the client, you are at the centre of the financial planning process. So, why use a financial planner?
There are many reasons why someone may use a financial planner, the most common being that financial planning can be extremely complex, particularly when superannuation and tax issues arise. Even if your situation is not that complex, very few people take the time to identify their goals, then develop an appropriate strategy to achieve those goals.
A licensed financial planner will help you:
identify your goals
make more informed decisions about your money
use and protect your money to your best advantage
choose financial products that suit your needs & circumstances
Who can provide me with financial planning advice?
By law, anyone who provides financial product advice needs to be licensed. This means that they must work for or represent a business that holds an Australian financial services (AFS) license.
What will it cost?
Financial planning is a valuable service, which can significantly impact upon your financial security. Like anything else, you get what you pay for and as with all professional services, there are no set fees or methods of charging as circumstances vary enormously. But be wary of financial planners who seem to offer their services free of charge you can be sure that youre paying for their advice elsewhere.
Methods used for setting fees may include:
a set fee for the task (once the scope of the required advice is agreed)
an hourly fee
a commission on the financial products they sell
a percentage of the assets they will be looking after
The legislation requires full disclosure of all fees, commissions and incentives by your planner and other participants, so any fee or cost that you will be charged must be clearly disclosed in your financial plan, also known as a statement of advice (SOA).
Members of CPA Australia are required to ensure that the amount of the fees charged reflects the value of the advice. They will also provide a written agreement as to the costs of the advice before the plan is prepared.
Choosing your financial planner
Choosing a financial planner can be a daunting task. It is important to go through the process and not to simply settle for the first one you find. Here are five simple steps you can take to find a financial planner that suits your needs.
Step 1 - Gather some names
Ask family, friends and colleagues if they can recommend a financial planner to you.
Check they are licensed by visiting the ASIC (regulator) Fido website to find out how to check that someone is licensed.
You can also use the CPA Australia 'Find a financial planner' referral service to find a CPA (Financial Planning Specialist) planner convenient to you. Those listed are licensed, have full accounting qualifications plus financial planning qualifications and are experienced planners:
Step 2 Make a short list
Start by phoning the financial planners on your list, or checking their websites, and ask them to send you a copy of their Financial Services Guide (FSG). This document must contain information including:
the financial planners name and contact details
the license holders name and details
the types of financial services that they provide including any restrictions
the types of financial products that they can advise on, including any restrictions
information about their fees, including any commissions
how they handle complaints
Compare the FSGs for each financial planner, looking for details of the services they offer, fee structure, names of licence holders and whether their products come from a range of institutions or just one.
Once youre happy with the professionalism, integrity and range of services of every financial planner left on your list, you are ready to set up introductory meetings.
Eliminate anyone:
who does not have a licence or written authority to represent a licence holder
who does not provide you with an FSG
whose FSG does not include details on how they handle customer complaints
who does not have professional indemnity insurance
who tries to sell you products over the phone
Step 3 - Prepare for your first meeting
Set up meetings with the financial planners on your short list. These initial meetings should be obligation free if they arent remove them from your list this doesnt mean they should be free but you should know what the cost is and be able to choose not to go further.
You will get the most value from your meeting if you prepare. Collect details of your assets and liabilities, your current income (from all sources) and expenditures. Gather any wills, trust documents and powers of attorney on your estate as well as your current insurance policies. This information is important as it will form the basis for the financial planning advice that you will receive.
Next, think about your goals. Remember that financial planning is about planning for your financial future. This means setting short and long-term goals, then developing strategies to achieve those goals. Your goals should be specific, realistic and include time-frames write them down. For example, to pay off your home loan within ten years or to pay $10,000 each year for school fees starting in three years.
Another aspect of financial planning is to determine your risk profile that is thinking how you feel about the possibility of an investments value falling (risk attitude) as well as your ability to cope financially with a loss (risk capacity). This is important as it will help determine what investments you will be comfortable with and how much risk you are willing to take with your money. Again, it is important that your goals also be taken into account before final product selections are made.
Your planner should ask you questions that help to establish both your tolerance to risk
Step 4 - Listening for good advice at your first meeting
The client is at the centre of the financial planning process, so the focus at the first meeting should be on you. A planner should be asking questions, but still letting you do most of the talking, letting you outline your goals.
Never be afraid to ask lots of questions, a good financial planner will expect this and be more than happy to answer them. Some examples might include:
Questions
What to listen for
What are your qualifications?
Useful qualifications are in financial planning, accounting, finance or economics
What kind clients do you mostly see? Young or old? Families or singles? People on social security?
Experience in areas important to you, like taxation, super retirement planning or social security.
What kind of products do you know most about?
Experience in the type of products that suit you, e.g. shares, managed investments. Be aware of restrictions in advice or product range.
How do you keep track of changes in a client's circumstances?
Service should include check-ups on how the plan is going.
How do you do your research? May I look at some of the services you use?
Subscribes to research journals and services. Even if you have never heard of them, flick through them and see if they compare.
How do you get paid for your advice?
Consider whether you prefer to pay a fee for the advice or have the fee collected through a commission.
In making your choice, consider whether they are listening to your questions and answering them.
Eliminate anyone who:
tries to sell you products at the first meeting
isnt listening to you and your goals
promises great returns or tries to sell you get rich quick schemes this is bad advice
whose body language is not consistent with what they are saying
Step 5 - Assessing your written plan
You have done the research and chosen your financial planner, so the next step is to review your financial plan (called a Statement of Advice). Good financial plans are realistic, they take time and discipline to achieve. Read over it carefully, make notes as you go and check that all of the following areas have been covered:
assumptions used (your personal circumstances for example)
your familys financial position
your goals
your risk profile (refer to step 3)
income tax and tax planning issues
risk management and insurance
investment alternatives and constraints
retirement planning
full disclosure of total cost to you
full disclosure of the total amount the adviser will be paid
estate planning
written recommendations for products
a process for implementing the plan
a list of ongoing services, including reviewing the plan
prospectus or 'Product Disclosure Statement' (i.e. brochures from product providers outlining the features of each product)
When considering recommended investments, look for ones that are consistent performers over five to 10 years, not just the current number one performer. Remember the investment market is volatile and higher returns may also mean higher risk. Finally, good advice may not always involve a product recommendation. It could simply be a list of actions that move you toward your financial objectives.
You can and should ask questions about the plan and ensure that you understand what is being recommended. Then you can work with the planner to put the plan into action.
Implementing your financial plan
Your financial planner should never ask you to make out a personal cheque to them for the investment amount. Money to be invested should be made payable to the third party in which you are investing, not the financial planner. Money may also be put into a trust account, which is audited nationally.
CPA Australia Financial Planning Specialists
As a member of Australias peak finance, accounting and business association, CPA Financial Planning Specialists (FPS) know the latest industry news, access international resources and networks, undertake regular quality reviews, are committed to continued professional development and are bound by a rigorous code off conduct.
