Picking the right Financial Adviser is very important. Our guide explains how to find one, why you might get one, what you will pay and the questions to ask. 

Updated 23 July 2019

If you take financial advice from a Financial Adviser, it is going to cost money even if you don't see the bill.​ The Financial Adviser environment in New Zealand is somewhat misunderstood.

This guide walks you through what a Financial Adviser is, who uses them and how they are paid, along with some tips of what to ask them should you decide to meet with one. 

In this guide:

• What is a Financial Adviser?
• Who uses a Financial Adviser?
• When do I need to use a Financial Adviser?
• How much does a Financial Adviser cost?
• How are Financial Advisers paid?
• How do I find a Financial Adviser?
• What questions should I ask a Financial Adviser?
• What can I do if I got the wrong advice?
• Financial Advisers - our view
• 10 Financial Adviser must-knows

Disclaimer: This guide does not intend to assimilate 'financial adviser' with specialist investment companies such as Forsyth Barr and Craigs Investment Partners.

Financial Advisers are professionals who advise on financial planning, insurance, investing and other financial services. They are qualified and usually (but not always) members of Financial Advice New Zealand or similar professional organisations.

Know this first:

• There are a range of financial advisers available, but some are aligned with a limited number of products from product providers, while others have a wide range of products which they consider when recommending financial advice.
  
• It is important you ask the question at the beginning of the process about the depth and variety of the range of products and providers which they consider in the process of giving advice.
  
• Throughout your life, you're likely to make different investments and buy different financial products at different times. The purpose of a financial adviser is to help you make the right decision about what investments and products are best for you.

While data is difficult to find, it is reasonable to believe that most Financial Adviser clients tend to be 40+ years of age with a healthy amount of money to invest. Younger New Zealanders are unlikely to seek out Financial Advisers, focusing instead on KiwiSaver contributions, buying a house and investing in bank products and/or managed funds as primary investment options.

If you are considering investing in complicated financial products and need advice, a Financial Adviser may be familiar with what you are looking at. Financial Advisers usually provide guidance for the following:

• Investments and Retirement Planning: Managed funds and investment trusts 
• Insurance: Personal and business insurance
• KiwiSaver: Selecting the right provider, switching to a more suitable scheme and contribution consultation 
• Financial Planning for all ages and stages of life

In most cases, meeting a Financial Adviser won't cost anything - they work on commission. What you pay usually depends on what you invest - very few Financial Advisers charge an upfront fee (there is a list of fee-charging advisers here). If you invest $100,000, it is possible your adviser will be paid around $250-$500 per year by the investment platform you select (representing a 0.25% to 0.50% commission, which isn't uncommon). 

Warning - You may not be advised on the most cost-effective investment available in the market. However, you can expect them to select the right product for your circumstances.

We spoke to Financial Advice NZ who advised us that Financial Advisers follow a 'Six Step' Financial Advice Process, which they explain in detail below. In summary, an 'adviser fee' is charged on a monthly basis and is around 1% of the total portfolio value. For example, if you invest $100,000, your Financial Adviser will be paid $1,000 each year.

1. The first consultation with the potential client is at no charge. 
2. From there the Financial Plan Fee can range from $750.00 to $4,000.00 plus GST.  The majority of advisers investment clients will use a personal wealth management system designed to make investment easy and flexible. 

• The system can only be operated by a qualified financial adviser, that is they must be an Authorised Financial Adviser registered on the Financial Services Providers register.
• These systems provide access to over 2,000 investment options within New Zealand and offshore from Managed Funds, ETFs, direct investments including term deposits.
• The investments are held separately on the client's behalf by an independent custodian. Advisers will generally charge a 1% Portfolio Service/Annual Adviser Fee with the percentage fee reducing depended on the size of the portfolio.
• If there is any commission, rebates or reduced management fees, these are all credited to the client and shown in their cash account.
• The adviser fee is charged on a monthly basis and paid for separately from the clients cash account.

What do clients get for the portfolio service fee?

Key Benefits and Advantages

• Monitoring Your Investments
• Ongoing recommendations and monitoring of your investments to ensure that it continues to meet agreed investment goals and objectives
• Meeting regularly with you on an agreed basis to review investments
• Making and implementing agreed changes to your investment portfolio.

Reporting to You

• Consolidated reports on investments
• Current valuations
• Performance reporting for both individual investments held and overall portfolio performance
• A list of cash transaction history
• A comprehensive tax report annually which also details the tax-deductible fees that may be available after consulting your professional taxation adviser.

Investment Portfolio Management

• Independent investment custodian and professional administration
• Choice of investments and investment portfolios
• Regular withdrawals for income purposes
• Portfolios can be rebalanced 
• Portfolios can be changed to match changes in personal situation
• Tax paid on your investments in 'multi-rate PIE’s (PIE’s are Portfolio Investment Entities) at your notified Prescribed Investor Rate (PIR)
• Online access to information about your account.

Quality Investments

• Access to reduced management fees on some funds
• Access to tax effective investments.

Disclaimer:

1. MoneyHub has no oversight or ability to gauge the accuracy of the above statements provided by Financial Advice NZ.
2. A suggested method of insuring you receive the above benefits is print a copy of the section above and ensure that the financial adviser you are meeting with agrees that they will be provided as part of their service.

This section appears courtesy of the New Zealand Financial Markets Authority. While this is a complete list of questions to ask and consider, we recommend always asking for an explanation if you don't understand something when meeting with a Financial Adviser.

1. How do I know what you’re recommending is the best option for me?

• Your adviser should put their recommendations in writing, setting out what they’re recommending and why.
• Has your adviser asked you questions about your circumstances and needs? For example, your financial goals and tolerance for the ups and downs of investment markets?
• Has the adviser helped you prioritise your financial objectives, explained and discussed choices with you, and developed a strategy to help you achieve your objectives?
• Do you have a clearly defined scope of service so you know what advice is being provided and what is not?

2. What are the risks of this investment?

• All investments carry risk. Your adviser can’t protect you from investment risk, but it’s his/her job to ensure you understand what you are getting into.
• Has your adviser provided clear and simple explanations about how the investment(s) you’re considering will work and what could go wrong?
• Do you understand how you can make, or lose, money from this investment?
• If your adviser is advising you to change from another product, he/she must tell you the costs as well as the benefits, and risks of the switch. If the adviser can’t provide a specific comparison (for example, if they are unable to comment on other provider’s products), ask for an explanation of the risks of changing products and investigate this further, or get a different opinion.

3. What will I pay?

• Some advisers charge a fee, others charge a commission or may receive sales-related incentives. Details of any fees or commission that apply must be provided to you in writing in a formal disclosure statement before you pay the adviser any money. 
• Check to see if they charge ongoing service fees. If so, find out what that service means. Will you get regular reviews of your circumstances and investment portfolio? Will re-balancing of your investment portfolio be necessary?
• Some products have entry and exit fees and may charge ongoing management fees and expenses. This information should be explained in the product disclosure statement so be sure to read it.
• Are the fees reasonable for the services you will receive? What impact will the product fees have on your returns? Remember even small differences in fees can translate into large differences in returns over time. Five questions to ask your Financial Adviser

4. What information will I receive about my investments?

• Find out how often you’ll receive reports or transaction statements showing the value of your investments and the fees and taxes paid. It’s important to have this information so you can watch out for warning signs that something may be going wrong.
• If your adviser is providing you with ongoing service, ask how often they’ll contact you. Remember things change, so it’s important to review your plans at least once a year.
• Your adviser should provide information about appropriate benchmarks to help you compare your investment’s performance against other similar investments in the market. Advisers must also provide you with specific product disclosure information for each investment product you are using.
• Do you understand how to interpret the financial reports you’ll receive? Do you want ongoing service and calls when changes need to be made and what they will cost?

5. How can I get my money back?

• If you’ve agreed to a fixed-term investment, you may need to pay a penalty and/or fee to get your money back. There may also be restrictions, for example, units in some managed funds can only be sold at the end of a month, or there might be a limited market for some types of products.
• Investments in KiwiSaver and other superannuation funds are often locked in until you retire. If this is the case, you usually can’t get your money out early. • Have you got enough money readily accessible if you need it?
• Some advisers may recommend you put ‘emergency’ money in a cash fund, but remember entry and exit fees may apply.

If you feel you've been incorrectly advised, you have a right to complain. You cannot complain about the performance of an investment, only the way you were advised. Traditionally few people have done so, unsure and embarrassed by how the investment has turned out and then putting it down to experience.

The best approach is to complain to the Financial Adviser first - explain why you think the advice you received was wrong and collect as much paperwork and emails as you can find to support your argument. 

If you don't get a favourable response, you can complain to the Ombudsman service. The Financial Markets Authority and the NZ Government both set out excellent guides on who to complain to.

Remember, when it comes to investing, 'low risk' isn't the same as 'no risk'. 'Low risk' can still see you lose your money, and provided the Financial Adviser has explained this fact, there are no grounds for complaint. But if you were advised that a product you invested in could not lose money, and then you did, you have been incorrectly advised.

• We are not the biggest fans of Financial Advisers. In many cases, you are not necessarily going to be presented with all the appropriate investment recommendations in the market, and you may not understand what you are investing in - a big 'no-no' in the rules of investing.
• Transparency and financial advisory are not known associates - in the age of the internet, we believe even the most inexperienced investor can learn with tools and resources from Sorted and MoneyHub. 
• Most investments offered by managed funds are made up of shares and bonds - you are likely to find platforms like Simplicity, Sharesies or InvestNow cheaper compared to what a Financial Adviser offers.  
• If you do use a Financial Adviser, be sure that your investments are diversified - anyone who suggests putting all of your money in a single investment is incompetent. Also, ensure that all your investments are being invested directly in your name with the investment entity and NOT in the name of the Financial Adviser or their company. Lastly, NEVER invest in an organisation you have never heard of or can't verify its existence, no matter how much the Financial Adviser may reassure you.

Peter, a MoneyHub user writes: "I was badly burned by a Financial Adviser a few years ago. I was told I was investing in a safe and conservative fund, but I lost 90% of my money as it turned out to be very dodgy. I later found out that the guy was employed by the fund manager, and that the Financial Adviser company was owned by the scheme! My money was blown and I got useless excuses after it all fell over. I'm still very angry."

Suggested Resources for when Meeting a Financial Adviser

• Young and looking to meet with a Financial Adviser? A reader of the New Zealand Herald describes her experience in doing just that.  
• A Stuff.co.nz article claimed that while there are "some excellent Financial Advisers out there, but most advisers do not have your best interests at heart - something like 80 per cent of advisers work on a commission model". Furthermore, the article claimed "commissions create a fundamental conflict of interest, and they'd have to be superhuman not to let it affect their judgment."