Recent data suggests that the number of Australians who have a financial adviser is at an all-time low, with approximately only 10% of all Australian adults receiving formal financial advice. However, it is estimated that around 12.6 million people have unmet advice needs with 40% unable to afford advice. The following article will outline some of the benefits of engaging with a financial adviser and the potential risks you are exposed to when using unaccredited sources for financial advice.
What do financial advisers do?
In effect, financial advisers act as your financial psychologist as they help you to navigate the emotions often associated with your money. Their purpose is to formulate a holistic or scoped strategy that takes into consideration your unique goals and personal circumstances to help you to improve your financial position over the long run. This process can also help you to decide the most appropriate course of action which can help to boost your retirement savings or achieve other goals such as buying a property or beginning an investment journey.
How can financial advisers help you?
Money is emotional. Financial advisers not only help you act with logic and rationality but they also have the expertise, knowledge, resources and research to compare various products and strategies to determine what is in your best interests. It can help to alleviate the stress that people feel around their finances as well as improve the performance of your investment or super portfolio. A study by Russell Investments suggests that this can add up to 5.2% of growth per year, compared to going at it alone.
What are the costs of engaging with a financial advice?
Financial advisers may seem costly at the outset but engaging with one to help you achieve your financial goals and objectives could put you hundreds of thousands of dollars ahead for a relatively small cost. The first upfront cost is the Statement of Advice which advisers must provide you with as it outlines the relevant strategies and investment recommendations required to achieve your goals.
This ranges from $800 to $10,000 depending on the complexity of your situation, however, the average cost is around $2-3,500. You may be charged a small fee to implement the advice as well as an ongoing fee if you wish to have an ongoing relationship with your adviser. This ongoing fee can be a fixed fee which does not change based on your portfolio or a percentage-based fee which is usually around 1.1% of your account balance.
Although this may appear to be a significant cost, this investment into your financial future will provide you with both tangible and intangible value. Tangible value could look like considerable tax savings, increased retirement savings and more money in your pocket both now and later. The intangible value includes having a sense of security, peace of mind as well as a clear financial direction which an adviser can provide you with through their financial coaching and support.
Should you get financial advice from your super fund?
Intra-fund advice refers to simple, personal advice which is provided by superannuation funds to its members. A report from 2020 found that 1 in 6 Australians currently use this form of advice. However, it is important to understand that this advice is in relation to superannuation and retirement planning and does not offer broader advice around investments outside of super, tax strategies and budgeting. The risk with intra-fund advice that individuals need to consider is that the model may involve conflicts of interest. This could mean that an adviser acting for a poorly performing super fund may be unable to advise the client to leave, despite it being in their best interests. However, this form of advice also has the potential to get members more involved and engaged with the super and retirement savings. It is always crucial that investors do their own research and weigh up the pros, cons, and risks of not paying for advice, as paying can get you a lot further.
Robo-advisers are systems that automate investments to match the different risk profiles of investors which then automatically execute investment decisions and transactions based on this information. What robo advice does not take into account is your holistic financial position and circumstances which include your cash flow management, debt, retirement goals, insurance and other short- and long-term financial objectives you wish to achieve. This is because any ‘advice’ is solely based on your agreed level of risk. Thus, this advice is not personalised to you and therefore provides you with limited flexibility. Unlike a traditional financial adviser, this form of investment advice does not provide you with a range of options that have been researched and compared which can improve your financial position and help you to achieve your goals.
With the rise of social media and rapid technological developments, many Australians are turning to online forums, platforms, and social media personalities to obtain financial advice. The significant risk of doing this is that these individuals are unlikely to have the requisite training and expertise to be providing you with reliable information. Just because they successfully made money from investing, does not mean they have the ability to help you with your financial future, and may end up costing you a lot more in the long run. The other risk with this form of financial information is that it is not based on your circumstances and therefore may be in no way relevant or appropriate to you. Thus, individuals should err on the side of caution when they encounter free financial information or advice online, particularly when it is not general or factual in nature.
Recently ASIC has taken a strong stance and has cracked down on unqualified social media personalities coined ‘finfluencers’ from providing financial advice. On March 22, 2022, ASIC announced they were closely monitoring some popular personal finance influencers and are considering taking serious action including prosecution if they find these individuals providing advice without holding an Australian Financial Services License (AFSL). This includes finfluencers who share links to investment and trading platforms and suggest various products to buy which ASIC explained could be considered as ‘dealing by arranging’ which falls within the scope of an AFSL.
The bottom line is that you need to be honest with your level of knowledge and comfort. If you don’t feel you have the time, knowledge, and discipline to do it yourself, seeking help from a professional may be an extremely rewarding decision. The most important thing is that you act today and do not put your finances in the too-hard basket as this will eventually catch up to you and the missed opportunity will never be recovered. If you would like to take action today and get on top of your financial situation, please click here to organise a complementary meeting with an EPG Wealth adviser.