What Does A Financial Adviser Actually Do – And Do You Need One?
Ever thought about financial planning? Didn’t think so. Financial planning sounds like a pre-retirement move for people who have amassed a fat salary and a lot of spare cash. You’re at the beginning of your career, you have no savings and you’re too busy worrying about the here and now to think much about the future. Getting a financial adviser just isn’t on your radar yet. But should it be?
According to Nga Vu, a Senior Financial Adviser with the Kearney Group, financial planning may be even more valuable at 25 than it is at 50. “Financial planning is actually all about lifestyle,” she explains. “You get to set how you want to live now and into the future, and we’ll help guide you. We also firmly believe in our role as educators – good advisers will teach, as well as advise you. Our job is to empower people to make a lifetime of great financial decisions.”
Financial planning can take you from very small steps (like getting out of debt and learning to balance your budget); to big wealth-building strategies, which is why you should consider it sooner rather than later.
Financial planning is about being smart with money – the earlier you get started, the further you’re likely to go.
It’s not just about stocks and investments
The most common misconception about financial planning is that it’s all about investment management; that financial advisers exist to tell you how to invest your savings. That is part of what they do, but not the whole picture.
Basic budget and cash flow management
Financial planning begins with basic budget and cash flow management. Your financial adviser will take a look at your income and talk to you about what you want to achieve – whether that’s saving towards a house deposit or spending $100 a week on beer. Your adviser will then make a realistic plan with you that takes into account all of your regular expenses, showing you how you can better manage your money to achieve your goals.
“Understanding how money moves through your household and truly knowing what you can and can’t afford provides the foundation for every other financial planning strategy.”
Like many financial planning companies, the Kearney Group offers its clients tools to help you basic budget and cash flow management. “The cash flow and budgeting piece of our work is crucial for everyone, but particularly for younger people and those on low incomes. Understanding how money moves through your household and truly knowing what you can and can’t afford provides the foundation for every other financial planning strategy,” Nga explains.
And learning to budget better will help you to save for the things you really want. If you’ve got your heart set on a major overseas holiday but you don’t know how to get there, a financial adviser can guide you. Advisers will work with you to plan for major purchases or life expenses – housing, education, holidays, family – helping you to understand how much you’ll need and how you can realistically get there.
Mortgages, loans and insurance (for when it hits the fan)
Financial advisers can act as brokers (a person who helps arrange or organise goods and services), helping you get a mortgage or a loan. They will shop the market to ensure you get the best deal and manage all the paperwork on your behalf.
Organising loans and reviewing debt
“Basically our job is to take all the pain and stress out of organising loans, and to ensure that when your facilities are set up, they’re established correctly and in a way that they won’t put strain on your household’s cash flow,” Nga says. “A good broking service will also include a Debt Review Service.”
In addition to organising new loans, your adviser can review the debts you already have and make sure they’re as lean as they can be. “By getting a bit of debt advice, you can save thousands (sometimes tens of thousands) in unnecessary repayments or tax,” Nga says. “Getting on top of a first mortgage or HECS-HELP debt is one of the most liberating things. It provides the much-needed oxygen to start saving and planning for the future.”
Financial advisers can also act as insurance brokers. When you’re young, it’s hard to imagine that you’ll ever run into serious bad luck, but bad luck has a habit of dropping in unexpectedly – insurance is designed to build up your defences against a terrible twist of fate.
A financial adviser can walk you through all the possible risks to your income and financial security and explain the insurance options, including life insurance, total permanent disability insurance, trauma insurance and income protection. “As young people, if you insure nothing else, make sure you insure your income,” Nga suggests. “It’s your greatest asset.”
And then yes, there are stocks and investments
It doesn’t take much to start an investment portfolio. You can kick off with just a couple of thousand dollars and see a decent return, so long as you’re happy to leave those funds invested for a very long time.
Setting up an investment portfolio
A financial adviser can establish and manage an investment portfolio on your behalf, usually for a small percentage fee (but always ask to know what the fee is in dollars to avoid any confusion). When you’re starting out, your adviser will explain how investing actually works, and give you some guidance around what investment might suit your budget, your personal appetite for risk and the current economic climate.
A financial planner can also look at your superannuation (which is invested on your behalf by your super fund) and give you tips on how to get the most out of it when you retire. “Taking control of your super is also really important. In what other area of our lives would we allow someone to take 9.5% of our income and stuff it away in a black box?” Nga says. “Our job as advisers is to help you understand where this money is going and help you make the most of it.” The younger you are when you start thinking about this stuff, the more you can do to affect it and the better off you’ll be in the long term.
So how much does financial planning cost?
Your first meeting with a financial adviser should be a free, no obligation introduction to their services. You can explain your current financial situation and the adviser can give you a sense of how they can help you, and what the associated fees are going to be.
You can usually access financial planning services for free through your bank, and you’ll be using the financial products (insurance, mortgages, etc) that your bank offers. Generally speaking, independent financial advisers will arrange mortgages, insurance and loans for free also, because they’ll collect a fee from the loan/insurance institution after you sign up.
The good news is you can pay for financial advice out of your super.
Whether you’re dealing with your bank or an independent adviser, they’re required to tell you if they get any commissions or incentives for offering you certain products. The information should also be included in your adviser’s Financial Services Guide (FSG) or Credit Guide, which they are required to hand over before giving you financial advice.
If you decide to go ahead and get some advice or make a formal financial plan, your financial adviser will prepare a Statement of Advice, which outlines the exact strategy and the associated fees. Basic advice like budget and cash flow management should cost between $200-$700. More complex financial plans, taking into account businesses, investments, family tax issues, range from $2000-$8000 to establish, and then there are ongoing fees for the ongoing management of your finances.
Costs for financial planning services vary hugely depending on where you go for advice, so make sure you shop around. The good news is you can pay for financial advice out of your super – ask your adviser how.
How do I know if my financial adviser is worth it?
Check for qualifications first, Nga advises. You want to make sure your adviser has a degree in business or commerce and is a Certified Financial Planner.
“The other major thing is much more personal – you need to feel comfortable with the adviser you choose,” says Nga. “You’ll have lots of intimate conversations with them, things you may not discuss with your closest family or friends – so, ultimately, you just need to click. Don’t hesitate to ask around for a referral from people you trust. Word of mouth is a great way to find a likeminded adviser who’ll work well with you for years to come.”
Simone Ubaldi is a ghostwriter, music journalist, film critic and has co-authored four books, including memoirs of Bon Scott and Mark ‘Chopper’ Read.