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Amanda Morrall on who to trust with your money and how to find a good advisor

This week I was approached by a friend looking for some advice on money matters. I had to emphasize the fact that I am not an authorised financial advisor (AFA). Why should they or you care whether or not I am an AFA? Because new rules introduced in the last few years specify that any professional giving you personalised advice has to be authorised to do so. What this means in plain English is they have passed certain tests and meet criteria laid out by regulators with the Financial Markets Authority. Previously, anyone could call themselves a financial advisor, regardless of their background, qualifications and experience. New Zealand was the wild west of the financial services sector. Thankfully, there are now rules and system in place meant to restore confidence to the financial advisory sector and to raise the bar in general.
I won’t pretend to be anyone other than I am. I am a journalist with more than 20 years experience, a published author specialising in personal finance and a yoga teacher. The information I share with you is for your own personal empowerment and not for my own personal gain. Of course, if you want to buy my book, I won’t say no. Perhaps it’ll help you along your journey to financial independence if that’s what you’re after.
My own view is that with enough information you can be your own financial advisor. No one is going to care more about your money than you. That said, there are some excellent individuals within the profession, and if you really don’t have a clue, don’t have the time and or inclination, then in many instances a financial advisor or another specialist that can help you makes sense.

So, what should you look for in an AFA?

Here are five considerations:

​1) Experience

​Find out how long they’ve been in the business of giving advice, where they’ve worked, who they’ve worked with and what, if any, their specialty is.

​2) Fees vs commissions

​In other places around the world, regulators are working to unshackled financial advisors from commissions. This is so financial advisors won’t push you into products (i.e insurance, mortgages and investments) where they receive a kick back. Because the new disclosure rules are so rigid here in New Zealand, the Government has decided not to go this route. Well so far anyhow. At the moment, financial advisors are paid by either a straight fees system (an hourly rate usually) and or commissions. They are required to tell you about all this during your meetings with them. If they don’t, ask. Also make sure you understand it. Like really understand it. Not just half of it. If they can’t explain it in a way that you understand, move on and find someone who can. This stuff is not as difficult as you might expect, particularly once you purge all the jargon from the conversation.

3) References

​Just as we rely on references from friends and family for doctors and dentists, be sure you ask your would be advisor for references. Obviously, if you get a reference directly from someone you trust and know who has benefitted from this person advice that’s preferably but as many Kiwis do not use advisors you might have to rely on the references they supply you with.

​4) Affiliations

According to a recent report prepared by financial journalist David Chaplin, of the 1,895 AFAs currently registered in New Zealand, only 325 investment advisors can be said to be truly independent. Banks, stockbroking firms and one single firm (AMP) together account for more than half of the AFAs. This is concerning to the extent that (despite stringent disclosure requirements) there are bound to be some inherent bias in their advice. To the uninitiated I expect a lot of this sounds ultra boring but it’s an important detail. If you are taking someone’s advice (be it KiwiSaver or another workplace superannuation scheme, another type of investment or insurances you want to know you’re not being shoved into something because it’s better for them than you. This isn’t to say those who are affiliated don’t want to genuinely give you give advice or aren’t good at their jobs. You just want to understand the nature of the relationship.

​5) Do you really need advice?

Lastly before you secure the services of an authorised financial advisor ask yourself whether you really need their help or whether you are just lacking in confidence to do it yourself and to invest the time to build your knowledge.

I write about this in chapter eight of my book at greater length however I’d like to share with you my top 10 tips on this question.

  1. Know thyself: be brutally honest with yourself about your financial acumen or lack thereof.
  2. Know the rules: spend some time familiarising yourself with the new rules affecting financial advisors.
  3. Know the difference: understand how RAs, AFAs, and QFEs differ
  4. Come prepared: have a list of question to ask your prospective advisor
  5. Shop around: interview a few potential advisers
  6. Check them out: find out if the adviser is listed on the Financial Services Provider Registry.
  7. Be aware: make sure you understand how the adviser is paid
  8. Gather opinion: ask to see references from other clients
  9. Look for chemistry: make sure you feel comfortable with the adviser.
  10. Trust your instincts: don’t enter a relationship with an adviser if it doesn’t feel right.

Amanda Morrall © 2024. All Rights Reserved.