Nick Bruining: No time like the present to jump into world of financial advice amid tax office clarification

With the Australian Taxation Office clarifying a significant portion of the fees paid to a financial adviser are now likely to be tax deductible, the new financial year may see you jump into the world of financial advice. Advice provided by a licensed financial adviser relating to superannuation arrangements or tax planning is likely to be tax deductible. One of the ongoing problems is that there’s no clear and obvious set of guidelines, explaining what good financial advice looks like and how much it should cost. Good comprehensive financial advice will include a detailed look at your personal cashflow, how the identified lump-sum outlays will be funded, Centrelink benefits, concessions, tax strategies, superannuation strategies, aged-care issues if relevant and finally, what happens to your estate when you die. Investments are part of the process but the strategies, tricks and how to legally “work the system” are where the real value is added. You start the selection process by simply typing “financial advice” into the moneysmart.gov.au website search box. Fifteen minutes here will explain how the process works and give you checks and specific questions to ask of potential advisers. Next, visit the two main industry association websites to get the names of potential advisers you might add to any recommendations from friends. Ideally, work off a potential list of three advisers. The Financial Advice Association of Australia is the biggest and members are mainly advisers who work for financial institutions or listed financial advice firms. Most FAAA members are good, qualified and competent advisers. Certified Independent Financial Advisers Association members are all of the above but are also legally barred from receiving incentives or commissions of any type. They’re prohibited from having any links to recommended products, with most charging flat fees, arguing that this removes any potential conflicts of interest. After locating an adviser, you might start with an initial meeting. Be wary of “first hour free” deals. This often masks a product sales session. Frankly, good advisers don’t have the time to waste on an hour that could lead to nowhere. You’ll typically pay between $300 and $500 to meet with an adviser for an hour or two. In that session, you’ll be asked a lot of questions. This is a legal requirement to ensure recommendations you receive are appropriate for you. You’ll also be able to ask specific questions that may include answers that constitute general financial advice that deal with your queries. In many cases, that’s all you need and you’ll leave happy because you now know what to do next. You’ll also get a sense whether the adviser is a good fit and is able to help. Perhaps that’s later, when things get more complicated. Good advisers will make that call themselves. They’ll tell you that you don’t need ongoing advice and why. You should discover and sense during the meeting that there’s genuine value to be gained by engaging the adviser. The next step is to receive specific personal financial advice. This is delivered in a formal, legally required document called a statement of advice. Personal financial advice means you are given specific instructions and actions to follow. It’s like getting the detailed engineering drawings to build a new home. SOAs will typically cost upwards of $3500. That’s because most plans with detailed calculations, projections and instructions, typically take between eight to 15 hours to produce. Above all, you should be able to easily see and understand how the plan will work. Be wary of the adviser who only seems interested in managing the money, perhaps setting up a self-managed fund, when there’s no obvious benefit to you. Lastly, you may elect to engage the adviser on an ongoing retainer basis. These days, these costs start from about $5000 a year. For that, you would expect ongoing supervision of just about everything — from helping you with tax to liaising with Centrelink for you and providing detailed answers to any questions you have, whenever they arise. There should be at least one or two face-to-face meetings a year and possibly more if you are in a transitory period, all included in the price. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association