One of the things I hear regularly is people ask “What’s a good question to ask your adviser?” No questions guarantee you will find a good adviser, but some good questions may potentially throw up some red flags to avoid.
In light of the Banking Royal Commission, this is ever more relevant. There have been ‘independent’ planners with questionable activities as there have been with ‘institutional’ planners, but these questions are likely to give you a bit more insight into where you stand.
Who owns your business?
Most advice firms are owned by a handful of individuals. Be wary of those with institutional ownership, especially when those institutions also manufacture financial products. Massive conflicts of interest.
Who provides your licence (AFSL) to operate?
We have seen alleged examples of poor behaviour from CBA, Westpac and AMP aligned businesses. You may prefer a firms who has their own licence. This doesn’t guarantee a good adviser either. On key advantage of not being institutionally aligned, like AMP, Charter, BT, Hillross and the like is that firms without institutional ownership are likely to be free to recommend a broader universe of funds and insurance products. If you are meeting with a firm licensed by a bank, ask them what percentage of their clients’ funds or insurance contracts are placed with related entities. This should tell you all you need to know.
Do you own any shares in the company you are recommending I invest in?
This is a tricky one. If your adviser recommends you buy some CBA shares as a part of a direct share portfolio, chances are they may have some too. Thats probably not an issue. What may be an issue is that some advisers are developing their own in-house sector funds. For example, the Acme Financial Adviser Australian Share Fund (err, this is not actually a real fund). This creates a conflict of interest. Focus on those who have a broad Approved Product List (APL) to recommend only the best-in-breed and most fee-competitive funds.
What is an Approved Product List (APL)?
Put simply, an APL is a list of products that have been researched by the licence holder, and approved for use by the advisers. An institutionally owned licence that has an APL not much wider than their own products would appear restrictive of what the adviser could recommend.
Conversely, a wide list of available products should mean an advise is free to choose what really IS in your best interests.
To clarify, the issue with restrictive APL’s is to me, fairly clear. The banks are taking a lot of flak at the moment, most of which appears warranted. But that doesn’t mean that all the bank products are bad for all the people all the time. In fact, as an outside example an AMP super product MAY be the best thing for the next client that walks in the door. If that is the case, the adviser should be able to demonstrate that to their client. The problem is, would that same product be suitable for ALL clients, at ALL times? Maybe not. An ability then for an adviser to use that AMP product when it suits, and a wide range of other products to suit other clients at other times is likely to provide a better answer to all of the clients of that adviser.
At Accrue Financial, we still believe that the best way to get to know an adviser is to get a referral from a trusted friend or other professional. Word of mouth still works, as the people giving the recommendation have gone through the processes before.
If you have any other questions on this post, please let us know, and keep an eye out for more questions in the weeks to come.