Ask Questions First, Invest Later
Sun Herald
Saturday May 18, 1996
IF you have just received a superannuation payment, been made redundant, are saving for retirement or have just received an inheritance, you will probably need to see a financial adviser.
But with a plethora of advisers calling themselves securities dealers, investment consultants, financial planners or advisers, how do you know who to turn to?
While there isn't much difference between them, there is much to consider when selecting a financial adviser, according to independent adviser and Sun-Herald columnist George Cochrane.
People should assess the adviser's knowledge of the industry.
"You see a lot of young advisers at places like banks who have recently graduated from university and are virtually just trained sales people because they are told what to say by their superiors," Cochrane said.
"It is best to go for someone who has the depth of knowledge gleaned from between five and 20 years in the game."
Ask what tertiary or professional qualifications the adviser has and find out what vested interests they may have.
While many advisers receive commissions from fund managers, a few take commission only from the client's portfolio. Some do both.
"You have to rely on the honesty and morality of the adviser when they tell you that they could make $2,000 by putting your money in a particular place, but that they won't do that if it was not the best option for you," Cochrane said.
That's where the third factor in choosing an adviser comes into play: reputation.
"There is no such thing as a perfect portfolio, and even three very good advisers will choose a different portfolio," Cochrane said. "You have to decide which one suits you best."
Insist on a detailed written investment proposal and don't be rushed into any decisions. Make sure you understand what your adviser is telling you and don't be afraid to ask questions.
Never commit to an investment plan on your first meeting.
Ask to see the adviser's licence or proper authority to act for a licensee, and read the licence to find out what it allows the individual to advise on.
Find out what their areas of expertise are, and whether they have enough indemnity insurance to cover you.
Finally, let your adviser know you. They need a lot of information about you to make sure their advice is appropriate.
TEN QUESTIONS YOU SHOULD ASK
1 Are you a licensed securities dealer?
2 What are you licensed to advise on?
3 What are your areas of expertise?
4 How are you paid?
5 What benefits will you receive from my investment?
6 What are your qualifications?
7 What experience do you have?
8 What is your source of research?
9 What is your professional indemnity insurance?
10 Are you associated with the providers of investment products you recommend?
© 1996 Sun Herald