Choosing a financial adviser

When receiving financial advice it is important to choose an adviser who will is right for you. But how do you know if an adviser is “right for you”?

 

Here are some tips for deciding whether a financial adviser is right for you. 

 

1. Know the types of advisers

There are three types of advisers. The type of adviser determines the financial products the adviser can give advice on.

 

The three types are: Registered Financial Advisers (RFA), Authorised Financial Advisers (AFA) and Qualified Financial Entity (QFE).

 

AFAs can provide personalised advice on any type of financial product including investment products. AFAs must provide clients with a primary disclosure statement and must comply with the AFA Code of Professional Conduct1.

 

A QFE is a company or bank whose employees provide financial advice on simple finance products such as mortgages, insurance and term deposits. QFEs can also provide advice on certain types of investment products. You will need to ask the QFE what types of investment products they are licenced to advise you on.

Both AFAs and QFEs are licensed and monitored by the Financial Markets Authority.

 

RFAs can provide personalised advice on simple financial products, such as, mortgages, insurance and term deposits (these are sometimes called category 2 products). RFAs are not licensed or monitored by the Financial Markets Authority.

 

AFAs, QFEs and RFAs must all comply with statutory standards2, be registered on the Financial Service Providers Register and belong to an external dispute resolution scheme.

 

2. Ask questions about the service the adviser provides

Questions to ask an adviser may include:

  • Do you have any qualifications that relate to the financial services you provide?
  • What is your experience as a financial adviser?
  • Who are you usual clients and what are their financial goals?
  • How much is your advice likely to cost? How are you paid – fees or commissions?
  • How will you assess my tolerance for risk?
  • What information will I need to provide to you?
  • Do you only advise on financial products from certain companies?
  • What ongoing information will I receive from you?
  • Who should I contact if I am concerned about the financial advice I have received?

 

3. Make sure you understand the advice you receive

It is important you understand the advice you are being given. If your adviser said something you did not understand, ask them to explain in a different way. Many people are worried they will look silly if they tell their adviser they do not understand but it is better to ask rather than have something goes wrong because you did not understand your adviser. If your adviser cannot provide financial advice in a way you understand, then they may not be the right adviser for you.

 

4. Read what the adviser gives to you

Take time to ensure you understand any documents the adviser gives you. Check:

  • what is written down is consistent and an accurate record of the adviser’s explanation of the advice
  • the information recorded by the adviser accurately reflects the information you gave to the adviser
  • whether there are other fees, such as cancellation fees, that your adviser has not disclosed to you.

Keep any documents together with any notes you have taken of your meeting in a safe and accessible place.

 

The Ministry of Business, Innovation and Employment is currently reviewing the laws that regulate financial adviser. This review will include how different types of financial advisers are defined and what competency requirements are appropriate for each type of adviser. You can read the options paper here.




[1] The Code of Professional Conduct requires AFA to place the interests of the client first and act with integrity, attain the Unit Standard Sets within the National Certificate in Financial Services that are relevant to the financial adviser services provided, and maintain and keep current a professional development plan and undertake continuing professional training.