New rules of engagement

Consumers may be taking a second look at their advisers in coming months. Are they offering a truly professional service or just flogging financial products that pay high commissions? Lesley Parker explains how to find good impartial advice.

Consumers may be taking a second look at their advisers in coming months. Are they offering a truly professional service or just flogging financial products that pay high commissions? Lesley Parker explains how to find good impartial advice.

Reforms to the laws covering financial planners soon to be voted on by Federal Parliament will be "fantastic" for those who sign up for advice after July 1, consumer advocate Choice says, but will do little for existing clients. What should those people do? Negotiate to get the same deal or sign up with someone new, recommends the chairwoman of Choice, Jenni Mack.

"There are 4.3 million people on the books of financial planners," she says. "If you're an existing client, you'll get told once a year how much you've paid - you won't get the right to opt out, you'll just get disclosure.

"We urge existing clients to renegotiate their agreements. And if your adviser won't put you under the new rules, change advisers. Then you'll get [to] opt out."

A parliamentary joint committee that has been holding hearings into the Future of Financial Advice (FOFA) reforms is expected to report by the end of the month, ahead of votes in the House of Representatives and the Senate in the next couple of months.

If passed, the FOFA legislation will oblige financial planners to act in the best interests of their clients and bar them from receiving commissions on financial products, so their advice isn't tainted by the potential for personal gain.

Advisers won't be able to accept "soft-dollar" benefits from product providers, such as overseas trips, and they won't be able to charge asset-based fees on investments that involve borrowing, so they're not tempted to push debt to increase their income.

Under proposed "opt-in" rules, they'll be compelled to obtain a formal agreement from clients every two years if they want to be charged for ongoing service.

Mack says the FOFA reforms tackle what has been the biggest issue in financial advice in Australia: conflicts of interest, where financial incentives offered to financial planners by product providers have the potential to skew their advice.

"What we've seen in the industry is that it's been a sales force, not a professional advice service," she says.

"It's these very conflicts that have caused huge consumer losses in Westpoint, in Timbercorp, in Rewards Group ... these were commission-paying products and advisers recommended them because they were getting a big cut from them.

"The business model of Storm [Financial] was driven by remuneration structures that paid advisers commissions every step of the way."

Mack says FOFA will do the industry "a huge favour" by putting it on a par with other professions.

For consumers, it will put in place some basic mechanisms that are standard practice elsewhere, "things like telling consumers how much they're paying, actually requiring consumers to agree to charges."

"Consumers will be in the driver's seat so that the industry will start providing the sort of services that Australians want," Mack says, including strategic rather than product advice and cheaper, piece-by-piece "scaled" advice.


However, there's a view that product providers might find their way around some of the planned FOFA changes and that an unintended consequence of the reforms - if compliance proves as expensive as the industry claims - could be that there will be fewer independent advisers.

Ben Maw, a certified financial planner who set up his own practice, BPM Financial in North Sydney after feeling pressured to push the products of the big institution that first employed him, says it was surprisingly hard work to go out on his own.

"I made a business decision not to be licensed or aligned with any bank or fund manager [but] not many people realise that it's a lot easier - and cheaper - to simply get a financial planning licence granted via a big institution, whether as an employed adviser or even for those advisers who are running their own business," Maw says. He adds that he's worried institutions are buying up financial advice firms and licensees ahead of the introduction of FOFA.

The Commonwealth Bank of Australia (CBA), for instance, recently bought Count Financial, one of the largest licensees in the country, taking CBA's planner head count to about 1850.

Research by Roy Morgan released last year found that many people are confused by branding and - despite legal disclosures - still might not realise, for example, that a name such as Hillross is actually part of the AMP Group.

"Adding to this concern is that planners aligned to the major wealth managers continue to funnel the majority of the funds they establish to their parent fund manager," the researcher says.

Roy Morgan found AMP-linked advisers directed about 80 per cent of funds internally, on average, during a four-year study period, while ANZ advisers were at the lower end of the scale at 45 per cent.


A principal of Quantum Financial Services, Claire Mackay, says even if an adviser doesn't accept commissions, pushing you into their parent company's platform or products "can still do wonders for their personal remuneration - sadly, the benefits for you are not so clear."

She worries that more financial planning firms will bring investments in-house to get around the ban on commissions and other incentives under FOFA and customers won't see these biases.

So, what should be on your checklist when you go looking for a financial planner (and the advice is you should vet at least three)?

The president of the Independent Financial Advisers Association, Daniel Brammall, suggests two key questions: "Who are your shareholders?" and "How are you paid?"

The general manager of policy for the Financial Planning Association, Dante de Gori, says this is a long-term and personal relationship you're looking for, so you need to be sufficiently comfortable with the person to be able to open up about your life and goals.

"If you have particular values that you abide by, why not find out if the adviser has those same values?" he says.

Ask some questions that require more than the "stock, standard" answers a planner might have prepared in advance.

Author Barry Lizmore, a financial planner and part-time lecturer whose book Take Control of Your Money: Getting the Financial Advice You Need was published in December, says word of mouth is an important tool but be wary. "A lot of people think they're getting good advice when they're not, so it's a tick but not a big tick," he says.

Look for someone who takes an interest in you. "They should try to find out information about you before discussing the options," Lizmore says.

But before you tell them what you need, ask them about their areas of specialty.

"It's hard for one planner to do all things well," he says, so they might specialise in DIY super or retirement income, or focus on younger clients who want to accumulate wealth.

Favour someone with more than the basic qualification - the higher "certified financial planner" designation, for instance.

This means they've been around for a while and they're keeping up their professional development, says Lizmore (who is a CFP).

The author and online publisher of, Trish Power, says go into planner interviews well prepared.

"People need some financial education themselves so they get the best value out of whomever they choose," she says. Read up, talk to Centrelink's Financial Information Service and try courses such as those offered by the ASX, Lizmore suggests.

And don't forget to have your accountant in the mix, Power says.

They are university educated and can provide excellent "structural" advice, which differs from investment advice.

"They're very good at this stuff," she says. "Plus they're the person who's probably most familiar with your circumstances."

Lastly, be prepared to pay for good advice. A recent survey found that the average person thought a financial plan might cost $500 when, in fact, it's likely to cost about $3000.

"If you want advice with no product pushing [and] no deals, it will cost," Lizmore says.

The basics

A licensed financial planner should provide you with a Financial Services Guide.

If you want to check that a company or representative is licensed, go to and search the AFS authorised representatives register.

You can search other registers there for banned and disqualified advisers and for "enforceable undertakings" sought from advisers who've been found wanting by the Australian Securities and Investments Commission.

You can search for a financial planner on the website of the Financial Planning Association of Australia at

Strategic advice that pays off

Peter and Ann Rogers, now 67, began getting financial advice in their mid-50s when they bought an investment property.

Ben Maw was the second planner assigned to them by their accounting firm and they followed Maw when he left the firm a few years later (though they had to wait six months until he was free from a legal obligation not to contact the firm's clients).

"Ben has been exceptional, I would have to say, in terms of being aware of our situation, our needs,"

Peter says.

He is transitioning to retirement and Ann is retired.

Asked what characteristics in particular they value in a planner, Peter says Maw is not only well versed in all things financial but is also "personable".

"He's interested in us as people, he's easy to talk to and he doesn't force anything on you.

"He's not flamboyant and I think that's a good trait.

"He doesn't seem to push any particular product. He certainly gives us the impression that he looks at things from our perspective entirely and not from any other perspective, including his own."


Tick the box if:

- The adviser listens more than they talk in the initial meetings.

- The conversation is about strategy and structure rather than products.

- The adviser covers all asset classes, not just a selection (excluding property, for example).

- They charge a fee for service, preferably not an asset-based fee.

- They have a higher qualification, for example such as being a certified financial planner.

- The adviser answers questions that provide information about their values and character.

- They specialise in the areas in which you need help.

- They can explain complex matters in plain English.

- You have a personal referral from a knowledgable person.

- You feel relaxed in the company of the adviser.

Put a cross in the box if:

- An adviser pushes a particular product or products.

- They have a magic "black-box" or "no-risk" solution.

- They offer a solution before you tell them the problem.

- They appear to have "templates" rather than tailored solutions.

- They promise high returns or say they will make you rich.

- The plan sounds too simple or it's so complex you don't understand it.

- The adviser can't provide clear answers to your questions.

- The adviser doesn't include both you and your partner as you discuss your options.

- You feel rushed.

- You just don't "click".

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