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Getting started with a financial planner: what you need to know

JTB Studios
Private Client Adviser
9 Aug 2013

It is unsurprising that the Government continues to tinker with regulations surrounding financial planners. Clients place a great deal of trust in financial planners, whose advice can have an enormous impact on their wealth, lifestyle and retirement planning. 

Yet most of the time, the public doesn’t get a clear and transparent view of exactly how the financial advice industry works. It’s difficult for the consumer to see how convoluted it has become, or to realise that ‘advice’ is often inseparable from product sales.

Imagine buying a car: when you go to a Holden showroom, you know the salesperson will suggest you buy a Holden; the Ford dealer does the same, and so on. 

But when you go to a financial planner, you’d expect their advice to be free from any such bias. You want their frank and fearless recommendation, based on your personal circumstances and goals. Yet a planner representing a particular bank or ‘dealer group’, as the large advice networks are called, will have a set of products at their disposal. From managed funds through to life insurance, these advisers have products in their showroom, and are just as keen to sell them to you as your local car dealer. 

The fact is, genuinely unbiased financial advice can only be provided by independent firms, as they have no affiliation or financial arrangement with investment product or service providers.

Given the importance of choosing the person or team who will help shape your financial future, it’s something that requires a lot of thought and consideration. It also requires you to arm yourself with a basic level of knowledge, so that you can make informed decisions.

What is FOFA – and is it a silver bullet?

The Future of Financial Advice (FOFA) package is essentially the Government’s reform package to improve the provision of advice to retail clients. When the dust settled on the GFC, it became clear that many financial planners had provided questionable – or downright bad – advice to their clients. Some planners had recommended products based on the hidden commission they’d receive, while others – notably Storm Financial – used the banks’ willingness to lend to set their clients up with disastrous margin loans. In the case of Storm’s clients, when the margin calls came, many of these people lost all their assets.

But that is the disaster end of the scale. More often than not, the issue is that clients don’t receive the best possible advice, or are charged fees and commissions that don’t reflect the value of the advice they receive.

According to Treasury, the key elements of the FOFA reforms are:

Best interests duty

The introduction of a best interests duty means advisers will be required to act in the best interests of their retail clients and place their clients’ interests ahead of their own when developing and providing personal advice.

Opt-in and fee disclosure

Advisers will be required to request their retail clients opt-in, or renew, their advice agreements every two years if clients are paying ongoing fees.  In addition, an annual statement outlining the fees charged and services provided in the previous 12 months must be provided to clients paying ongoing fees.

Ban on conflicted remuneration

This reform will see the introduction of a ban on conflicted remuneration, including commissions. 

This reform will encourage financial advisers to become more client-focused, as more of their fees will be paid directly by the client rather than indirectly through product commissions. 

Ban on soft-dollar benefits

This reform will see the introduction of a ban on non-monetary (‘soft-dollar’) benefits given to advisers who provide financial product advice to retail clients. 

Scaled advice

Scaled advice is advice about a specific area of an investor’s needs, for example insurance, or about a limited range of issues. This in contrast to traditional ‘holistic’ advice where advice is provided on all aspects of the client’s financial circumstances in a full financial plan.  It is expected this will enable consumers to access beneficial advice at an affordable cost.


Despite much protest and debate within the financial services industry, these reforms are positive for consumers, as they enshrine good practice and ethical behaviour. And while they should have always been the minimum standard for providing professional financial advice, they are certainly not the silver bullet for making the industry transparent and unbiased. This will only happen when product sales are completely untangled from advice, and there is no connection between the two.

The FOFA reforms are nothing more than what any reasonable person would expect when they place a high level of trust in their planner. Any client would expect that their financial planner would act in the client’s best interests, or that their recommendations would not be influenced by gifts or rewards from a product provider.

Education Standards – is the bar too low?

Consumers can also be bamboozled by the definition of a financial adviser or financial planner. In fact, to be called a financial planner does not even require a university degree – so unless you ask, or know the membership rules of each professional body, you could be taking advice from someone with little more than a short-course qualification.

There is still one basic education standard that applies to anyone who gives advice, at any level, in the industry – that is, from the basic telephone customer service person to the holistic financial planner.

It is more useful, in practice, to look for a member of a respected professional association. To become a member of the Financial Planning Association (FPA), members need to have a degree-level qualification, which is appropriate when providing a complex financial plan.

Overall, to get the most out of the financial planning process, it is important to arm yourself with a basic level of knowledge, so that you can make an informed decision. Just as you would research that car purchase before you walk into the dealership, you should do no less when choosing the person or organisation who will help to shape your wealth, lifestyle and future.

Here are five questions to ask yourself and your prospective financial planner:

1.Am I clear on my objectives?

2.Do I understand risk?

3.What management approach do I need?

4.What are the fees and costs?

5.Are our values aligned?


  1. Am I clear on my objectives?

A financial planner will give you a roadmap, but you need to be clear on the destination. This means having clarity around your financial goal and the reasons for reaching it. Whether it’s funding a comfortable retirement, owning a dream home, retiring early or providing a head start for your children, there are myriad reasons why people want to improve their finances. The approach that you develop with a financial planner must be built on achieving the goals that are most important to you.

Starting with a blank piece of paper, you need to articulate: 

  • Where are you now?
  • Where do you want to be and when?
  • What does success look like to you, financial and lifestyle?

A good plan is just like road map. If you know exactly where you are going, often you can relax and enjoy the ride.

  1. Do I understand risk?

Any investment decision entails some degree of risk. It’s not possible to or even necessary to avoid all risks – the key is to understand them, and then ensure your investment advice takes account of them. Risk is also closely linked to your time horizons for investment. For example, if you have a long timeframe, such as 40 years to accumulate superannuation, then market risk is less relevant.

The main types of risk are:

  • Mismatch risk – The investment you choose may not suit your needs and circumstances
  • Inflation risk – The purchasing power of your money may be eroded by inflation
  • Interest rate risk – Changing interest rates may reduce your returns or cause you to lose money
  • Market risk – Movements in investment markets may impact the value of your individual investments
  • Diversification risk – The risk of over-exposure to any one investment or investment market
  • Currency risk – Currency movements can affect your investments
  • Liquidity risk – The risk that you can’t access your money when you need it
  • Credit risk – The institution you invest with may not be able to meet its obligations (e.g. default on interest payments)
  • Legislative risk – Risk due to changes in laws and regulations
  • Gearing risk  – The added risk involved when borrowing to invest


  1. What management approach do I need?

Building and protecting wealth means choosing the right investments for your needs and ensuring you have a selection of investments that requires the least amount of risk to achieve your goals. Your investment strategy needs a level of active management that can weather all market conditions and remain consistent with your personal financial goals.

The key to positive investment returns is careful management of your investment choices. Your adviser should advise you how to reweight your portfolio when different sectors are performing strongly or poorly, while still maintaining your overall asset allocation.

Whilst “time in the market” is a basic principle of long term investment, “timing” the market is also important in respect to buying and selling quality assets at the appropriate time to achieve optimum outcomes – this is an important aspect of active portfolio re-balancing.

While your asset allocation and investment strategy remains the same, an active management style makes the most of changing valuations and economic trends within each asset class, to ensure you get the best returns while managing risk.

  1. What are the fees and costs?

The thinking behind many of the FOFA reforms is that if financial planners receive commissions when they recommend investment products, this will sway their recommendations. Therefore, doing away with this type of incentive is a positive step.

But there are still other ways that fees can eat into your investments. While it is normal practice for financial planners or fund managers to charge a management fee based on a percentage of the assets they are managing on your behalf, that fee can vary significantly. Be sure to compare like for like when considering your options. 

Also consider whether you are paying twice: one fee to the financial planner and another to the any fund managers they recommend. Direct investments are one way to avoid this cost.

If you do invest in a managed fund, consider what value you get for paying the fee. If a fund’s returns are consistently the same or close to the market benchmark, then you need to question the value of paying for their management skills.

For example, you could pay 1.5% of your portfolio’s value to a share fund manager, and they return 6% over five years. But if the market overall is returning 6%, you could have invested directly in shares, and received the same returns without paying a manager. However, if the fund’s active management meant you received an average 8% return, then the value they deliver is apparent.

  1. Are our values aligned?

Values are an intangible thing, and very hard to measure.  But it’s important that you feel comfortable with a financial planner and have the right chemistry with them. Consider how they interact with you:

  • Do they ask you questions about your life and goals?
  • Do they spend time listening to you?
  • Are they transparent about fees?
  • Do they recommend solutions and products from more than one provider?
  • Are they pushing one type of product or one product provider?

A good financial planner will be able to answer your questions openly and be transparent about their upfront and ongoing fees. They will give you confidence that you are making the right choices, not through slick sales tactics but by sitting down and explaining the strategy and why it makes sense.

Moreover, the best advice is unbiased. Look for an independently-owned financial advice provider, who is not constrained by the need to sell only their own products, but one who can make recommendations based solely on your needs.

Taking Action

While everyone’s financial situation is unique, there are some things that all financial planning clients have in common: they all benefit from quality, professional advice. Remember:

  • It’s never too early to take action: Small steps made early in life have the power to become significant opportunities 10, 20 or 30 years down the line.
  • Face your fears to move forward: Everyone has some concerns or misunderstanding about their finances, whether it’s not having enough cash flow, poor understanding of how to maximise earnings, or the best approach to managing a SMSF.   Whatever the issue or concern, it is always better to be proactive and put a plan in place to address it.
  • Education is empowering: Everyone can learn more about their money regardless of economic knowledge, business acumen or financial wealth.  Seeing an expert that is dedicated to the profession and who works hard to seek out the best opportunities for clients will always offer valuable advice, experience and strategies to maximise financial security.

To contact with Hewison Private Wealth, please call us on (03) 9682 1900, email info@hewison.com.au or visit www.hewison.com.au

For more information about professional financial planners, please visit www.fpa.com.au

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.