Why getting financial advice from your mates isn't always the best idea

You could think of a financial adviser as a guide or coach for your money. Their job is simply to help protect, grow and manage your financial wellbeing.

They're also there to offer you advice on a range of topics: setting a budget, debt management, personal insurance, superannuation, managing tax, confirming your government entitlements and planning your estate.

Some people will want to do a lot of research before seeing a financial adviser, others not so much. For a financial adviser to really add value, they need to have a good understanding of your current situation. This means a little investigation on your part.

Work out how much money you earn and how much you spend or save. Gather statements from any investments you currently have, including your superannuation. Consider what it is you are trying to achieve, but don't worry too much about how you are going to make this happen – that's the job of a good adviser.

There are over 16,000 financial advisers in Australia. So, finding one shouldn't be a problem. But finding the right one for you may take a little time and effort.

As a Russell super member, you can access the Russell Adviser Referral Program, which can help narrow your search and put you in touch with high quality financial advisers across Australia. Each adviser is a Certified Financial Planner (CFP) and charges on a fee-for-service basis (so you'll know what you're paying for upfront).

You could also get in touch with the Financial Planning Association of Australia (www.fpa.asn.au) or the Association of Financial Advisers (www.afa.asn.au), both of which have searchable databases of advisers.

A good financial adviser will make a significant impact on your financial wellbeing, so it's important to ensure their services match your needs. As financial advice is a complex area, many advisers have chosen to specialise in particular areas of advice. For example, some may focus on insurance and wealth accumulation strategies, while others may work with people near or in retirement.

Good advisers will be very clear about the services they offer and what you should expect from them. Many will have websites that explain more about what they do, while others may provide you with information packs you can read before you decide to make an appointment to see them.

Qualifications and experience are naturally important, but only to the extent that they are relevant to your situation. Having identified potential advisers who have the qualifications and experience you need, it's time to get personal and see whether you are willing to work with them – and vice versa.

Most financial advisers offer a free introductory meeting, where you can explore your goals and the adviser can explain how they propose to help you reach them.

During the first meeting, your adviser has an obligation to explain the services they provide, how they charge for advice, and offer information about the company they work for. This is contained in a document called a Financial Services Guide, which you can also ask for and review before your first meeting.

Be careful of advisers who seem to want to do all of the talking or start describing solutions (or products) before having a good understanding of your circumstances and what you hope to achieve. Bear in mind, however, that advice is not free. So, while an adviser may provide a broad indication of how they might be able to help you; it's unreasonable to expect them to provide you with solutions on day one.

If you're comfortable with your first meeting, the adviser is likely to want to schedule a second meeting (or in some cases extend the first meeting if you both have the time and you have brought some information along with you). This is where they will ask more questions about your circumstances.

Advice fees have received plenty of media attention lately and the way advisers work with clients is likely to face new legislation in the near future. Without weighing into the political debate, there are really only four payment options you need to be aware of.

• I. A stated dollar fee for preparing written advice

This could range in price from several hundred to a few thousand dollars, depending on the complexity of the plan provided. This fee is typically in addition to the cost of ongoing service, which is charged using one of the three other options. It is possible to pay for a plan only, and do the legwork yourself, although most people appreciate the option of having someone do things for them.
• II. A percentage fee based on the size of your investments

For example, an investment plan for $100,000 may involve a fee of 1% (or $1,000). Asset-based fees should include a list of ongoing services, as this fee typically applies annually and implies an ongoing relationship with your adviser. Note that this fee would change as the value of your investments increases or decreases over time.
• III. A flat-dollar, ongoing fee for ongoing advice

Based on your specific needs, you and your adviser agree on a set dollar amount to be paid for access to specific services. These services could range from an annual review of your plan, through to regular catch-ups with your adviser, strategy reviews and educational sessions.
• IV. Advice provided at an hourly rate

Using this method, your adviser only invoices you for the services performed. This would include any face-to-face or telephone contact you have with them, the time taken to research and document your plan and any additional services you require. Not many advisers offer this payment option.

Ultimately, you need to be satisfied that the value of the advice you receive justifies the initial and ongoing cost of the advice provided – something that all good financial advisers should be able to document and demonstrate to you. The best adviser relationships are based on trust and understanding; knowing there is someone on your side, putting you on the right track and working with you to keep you there.