Hello again Rask community!
Last week I introduced myself as the new Senior Financial Advisor here at Rask (you can read the full post here). This week, I have been asked to ponder: “What are five important questions to ask a financial advisor?”
I’ve decided to break this into a 3 part series:
- 5 questions to ask before committing
- 5 questions to ask when being presented with your “Statement of Advice”
- 5 questions to ask 6 months into the relationship
Part 1 – 5 questions to ask before committing
I have spent the last week contemplating how to tackle this one. I am obviously coming at this from an advisor perspective (cue the bias), but I really wanted to tackle some of the common hesitations I hear head on, no frills. I’ve thought about one of the worst ‘advice’ horror stories I’ve come across and tried to come up with a series of questions that could have potentially saved this poor fella from losing his entire retirement fund.
I’ll paint the picture. Let’s call this guy Mr SMS-Mess (you’ll see why). Mr SMS-Mess, was on track for a reasonably cruisey retirement. Early 40s, single with no dependants, 250k in super, reasonable debt balance left on his home. Something we could easily pick some low hanging fruit on and set up for a nice breezy retirement. What went so wrong then?
Mr SMS-Mess came across an online advertisement that promised 19% guaranteed returns on his super fund. Who wouldn’t want that sort of ‘risk free’ rate? Mr SMS-Mess certainly did, so he promptly plugged his phone number in. After a 10 minute phone call, he was sent an invite to a follow up meeting, in which a “fully comprehensive plan” was presented via a nifty slide deck. All it took was signing off some paperwork and bing-bang, the SMSF structure was created, the existing super rolled over, and the funds reallocated to the related investment companies unlisted property fund – lightwork!
2 years in, Mr SMS-Mess noticed the balance not moving, and started to think something seemed a little suss… That’s when he reached out to us. Sadly, at this point, there was little we could do aside from step him through the formal complaint process, and sit back to see what the AFCA determination landed at.
What could he have asked to flesh out some more obvious red flags and find an advisor that was a better (read: extremely more competent) fit?
First and foremost, Mr SMS-Mess could have found some big red flags after reviewing the FSG he was provided.
What on earth is an FSG?
This is the “financial services guide”, and an advisor must provide this document to you as soon as practicable after it becomes evident that a financial service is likely to be provided.
What is in it?
-
- Who we are
- What services we provide
- What referral relationships we may have in place
- How we get paid
- The details of our dispute resolution process
- The Australian Financial Services Licensee (“AFSL”) and authorised representative details
Question one: “Can you talk me through the FSG?”
If there are disclosures around affiliations to particular product providers or referral partners – ask them to explain how these potential conflicts are managed.
Now, one thing I will say here, asking your advisor in your first meeting to confirm how much their advice will cost you, will often end in a somewhat vague response. This in itself is not a red flag! An advisor’s cost will often depend on the complexity of the advice they are providing, which is dependent on your circumstances.
You’ve saved up a healthy sum and want to pop it into an investment portfolio and are not interested in alternative strategies? Easy!
You’re wanting to drop down to a part-time workload, but have no idea if this is affordable for you; your partner has received an inheritance and is now looking to sell their small business and retire; oh and you have been thinking that it might be time to have your estate plan put in place… Okay, that’s going to take some more time and resources to work through, so will reflect in the cost accordingly.
BUT, in that first meeting, you can ask for a range and some understanding around how this can be paid (upfront or in instalments) and whether there might be ongoing costs.
Question two: Asking the Advisor about their personal values – in whatever way resonates best with you.
Beyond the bare minimum (ticking the legal boxes) it’s important to recognise that there is no one best advisor – whoever works for you won’t necessarily be the best fit for your Aunt Sheryl.
The right advisor for you will be able to provide the technical expertise most relevant to your circumstances, but will also be aligned with your values on a broader macro level. So, if it were me sitting down to chat with my advisor for the first time, what would be my silver bullet!? I would be asking them their coffee order, and if they tell me they aren’t a coffee drinker, I’d be running for the hills (just a personal Melbournian preference of mine). But for you, it might be something deeper…
Maybe you want to know more about their opinions on ethical investing and how they create a positive social impact, professionally and personally. Or maybe, it’s digging deeper into what pulled them into this line of work…What fires them up to crack the laptop every morning? These are the sort of questions to think about in advance. Ask yourself, what sort of person you want to be guiding you on your personal finance journey.
Question three: “Who are the people you help and what are the problems you solve?”
Now to talk about the more meaty stuff. You’ve done your background checks to confirm the advice business and broader licence holders are trustworthy entities with solid reputations, you’ve ticked the box on the values alignment, now you want to start extracting intel. If we are still sitting in that first meeting, we want to ask some scenario based questions to gather the advisor’s experience in circumstances similar to our own.
This should open a natural conversation around their typical advice client – does it mirror your own circumstances? Do the problems raised sound like things you also want to address? If so, dig deeper… Get them to explain their advice philosophy.
What does the adviser fundamentally believe in? Are they focused on products and basic finance hygiene? Or are they deeply strategic and able to help with long-term forecasting and detailed advice?
Question four: “Do you have preferred investments/fund managers and/or preferred platforms/providers? If so, why have these been selected?”
What alternatives are available? Will these alternatives still be considered when creating my financial plan? It is important to acknowledge that many advisors will have preferred providers, platforms and/or investments. Again, this in itself is not a red flag! These decisions are often landed on after initial research being conducted into cost, quality of offering, breadth of capabilities, level of customer service etc. Nonetheless, you need to understand why these have been selected, and be confident that their due diligence has been completed.
Question five: “What will the advisor-client relationship look like?”
It is important to discuss hygiene matters at the outset; What is their availability and how will you be able to contact them? Will there be other support staff assisting them who will be more likely to communicate with you between meetings? When it comes to implementing the advice – will they help? If so, is this at an extra fee? Post implementation- will there be ongoing support? This is all personal preference sort of stuff – you might prefer an advisor who doesn’t hound you on the phone (have you heard of emails???), or maybe, you want the sort of relationship where you can knock ideas off via a 10 min chat on the phone. You’re in control here – don’t let anyone convince you otherwise.
A Final Letter to Mr SMS-Mess:
To Mr. SMS-Mess – I am truly sorry you drew the short end of the stick in an industry that is still plagued by a few rotten eggs. The good news? They are indeed a minority. Of all complaints handled by the financial complaints key body in Australia in 2024 (excluding those related to the Union Standard Group debacle), less than 3% were tied to investments and advice. If we take another spin on the data, in the same financial year, only 23 financial advisory firms received complaints. Currently, there’s about 15,562 registered financial advisers. Do some quick math and you’ll see that’s about 99.85% of us not trying to swindle your hard-earned cash.
Nonetheless, those bad seeds make a hell of a lot of noise and cases like yours are downright unacceptable. On the flip side, there are plenty of us good eggs out here, and we’re hustling hard to make sure our communities receive the guidance they actually deserve.
I hope this quick-fire list (elaborated in excruciating detail) helps you cut through the noise and land an advisor who not only gets your finances in tip-top shape, but is also someone you actually like dealing with.
Here’s your checklist:
- Ensure they are ticking all the bare minimum legal checks
- Check their broader values align with yours
- Make sure they have expertise in your demographic and the scope of advice you actually need.
- Ask what their preferred products are – and why
- Confirm the relationship dynamic feels like the right fit for you
Stay tuned for part 2 – Questions to ask in your strategy presentation…👀
In the meantime, Rask Advice has launched and is heavily waitlisted. Book a call with our team now to get your finances sorted and avoid a similar fate to Mr SMS-Mess. Our financial services guide is at the bottom of this blog in the disclaimer – if you care for more light reading.
