How to tell the Good from the Bad – Choosing a Financial Adviser
30 Aug 2022
This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication. To the extent that any information or recommendations in this publication constitute financial advice, they do not take into account any person’s particular financial situation or goals. We strongly recommend readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. Any client information and case studies contained in this publication have been shared with the express permission of the individual concerned. No person involved in this publication accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any advice, opinion, information, representation, or omission, whether negligent or otherwise, contained in this publication.
Choosing the right financial adviser is vital! Find one that is right for your needs, and they will help set you up to reach your financial goals1 and give you peace of mind for your family’s future. But, if you pick a bad one, you could lose some or all of your life savings!
Tips for finding a good financial adviser in NZ:
1) Make sure they are appropriately qualified!
- Are they registered? ALL financial advisers must be registered on the Financial Service Provider’s (FSP) register.2 If you don’t see their name on the list, that’s an immediate red flag!
To find out whether an adviser is registered, click here.
- What about their qualifications? To give advice, ALL financial advisers must have, or at least be near completing, their qualifications. The recent new regulations set a deadline for completing this: advisers must complete the NZ Certificate in Financial Services (Level 5) version 2 (NZCFS Level 5 V2)7 by the 15th of March 2023 and obtain a full license (or be working under one) issued by the Financial Markets Authority (FMA), or they will not be allowed to give advice past this date!8
You might be able to see a financial service provider’s FMA license displayed on their company webpage, such as on YG Financial Services’ Public Disclosure notice,3 but if you are unsure, don’t hesitate to ask directly.
2) Do they specialize in the services you actually need?
Did you know that financial advisers can only provide advice on the areas they have specialist qualifications for? Some providers are qualified to give advice in multiple areas, which is useful. Check whether the adviser you’re considering specialises in the service you need. If not, they cannot give you advice!
But watch out – a bad adviser might try to give advice they are not qualified to give. For example, if an adviser whose certificate is for Health and Life insurance were to try discussing KiwiSaver or investments, that would be a massive red flag!
3) Check their Public Disclosure notice! This will tell you:
- What areas the adviser specialises in.
- Details of their income! Most financial advisers are paid by commission1, which means often you as the client won’t pay for the service.4 But this does create a conflict of interest, which is why ALL advisers are required to disclose any commissions or bonuses they receive!4
Keep in mind:
- A good adviser will tailor recommendations to each individual, according to their circumstances. They will ask relevant detailed questions about your circumstances, goals and objectives to do this. You want an adviser that does this thoroughly, as full disclosure is VITAL!
An adviser who doesn’t ask questions before making recommendations is an adviser you should avoid!
- A good adviser keeps to your budget.
- A good adviser must always put the client’s needs first! 4 An adviser who does not put their client’s interests first may be more focused on selling a product for the commission than on whether it is a good fit for the client’s situation.1 For example, if a review showed that an insurance client’s risk had reduced and they no longer required the extra cover, YG Financial Services would advise the client to reduce their cover as that would be in the client’s best interests. However, if your advisor were to react in any other way, such as suggesting an increase in cover or the addition of new products, they are not acting in your best interests!
Beware of bad behaviour from advisers!
Honesty is absolutely essential as an advisor – if you cannot trust your advisor with the simple things, you definitely cannot trust them with your finances!
So watch out for these advisors:
The adviser that tries to attract customers with incentives from their own pocket, or by giving back part of the commission. DID you know this is not allowed?
The adviser who does not offer reviews at least annually. Without annual reviews, you could end up paying more than you need to, or not having appropriate insurance cover when you need to make a claim!
The adviser who acts on your behalf without your authorization! Yes, this really does happen! If an adviser tries to strong-arm you by applying for something for you without your permission, find another adviser – FAST!
The adviser who doesn’t ask sufficient questions during the application process! If your adviser doesn’t ask questions to get a full medical history when you’re applying for health insurance, or tries to skip your pre-existing conditions so that the policy can be issued quickly, there can be dire consequences! Without full disclosure, you could find your claims are denied due to non-disclosure, and this could have an impact on your insurability in the long run.
The advisor who always tries to sell you another product no matter the reason you rang. A good advisor listens, assesses your situation and finds a solution that best fits your needs. It could be a red flag for you if your advisor continually tries to convince you to increase your insurance cover, add on extras, or choose more expensive options outside your budget. Are they putting their commission above your needs?
The adviser who cannot be reached when you need them. Is your adviser hard to get in touch with? Can you get support when you need it (for example to get help with an insurance claim)?
The fraudulent advisor. Beware of sales pitches that sound too good to be true – sometimes they are! NZ Financial advisor Barry Kloogh’s multimillion dollar fraud was uncovered in 2019 when the FMA discovered that he was in fact running a Ponzi scheme. We can begin to see the impact of his fraud on his clients, as it was calculated that he owed investors $12million at the time of his imprisonment.5
You are looking for transparency, so ask questions and don’t accept vague answers. Choose an adviser who values full disclosure, and don’t be afraid to get a second opinion if you feel that something is off!
Still have questions?
Need a second opinion from a trusted financial adviser?
Looking for advice on insurance or KiwiSaver?
Come and chat with YG Financial Services!
*Note – All images sourced from pixabay.com
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