Questions to ask your financial adviser

An article by ASIC Chairman Jeffrey Lucy published in The Daily TelegraphJuly 2006

NoteLaws regarding financial advice have been reformed since this article was written. For more recent information, see Moneysmart's resources on choosing a financial adviser.

When it comes to choosing an expert to manage your money it is tempting to go to the adviser whose advertisements recently caught your eye, or who has been recommended by a talkback radio commentator or even your neighbour.

Some people look up the phone book and pick an adviser in a convenient location. Or they walk into the nearest bank or financial services branch and take pot luck.

There are better ways of choosing an adviser.

It may require some shopping around to choose someone who will put your needs first, works with other people in your situation and will fit in with you personally rather than giving you an ‘off-the-shelf’ plan. It is much better to shop around before getting the advice and, at the outset, asking even those questions that are not comfortable to ask. This is far better than dealing with a bad result at a later date.

The questions to ask an adviser include:

  • How long have you been giving financial advice to people in my position? The more experienced the adviser is, the better. If the answer is less than two years’ experience, you should ask whether anyone else in the business, with more experience, will check the advice given.
  • How much is this advice likely to cost me? Are fees charged and commissions earned rebated to me, or do you earn your fees from commission products only? How much commission are you likely to earn from the financial advice provided?
  • How do you deal with conflicts of interest arising from associations you have which, in some way, may prevent me from receiving objective advice? In particular, could the size of commission payments attached to any products influence your recommendations?
  • What is the risk attached to the products you recommend? Is the risk low, like bank term deposits or high where the return is linked to property development risk or shares which carry a volatility factor?

If the investment relates to high-yielding fixed interest securities, there are further questions you should ask.

  • Consider asking how liquid is this investment, who is borrowing the money and what is it for? Has the development commenced or is it in the planning and development approval stage? How much of the development cost is being financed by investments like mine and where do I rank in the creditor queue if the development fails?
Last updated: 01/07/2006 12:00