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News Bulletin : ADA News Bulletin October 2011
32 OCTOBER 2011 Compiled by Michael Lannon investment insight How to get good FINANCIAL ADVICE www.2020directinvest.com.au/ada | 1800 352 021 100% entry fee rebate on managed funds The continued volatility of global stock markets has many investors questioning the wisdom of their financial decisions. Those of you with an adviser are probably questioning the value of the advice you have received whilst simultaneously many DIY investors are wondering if they should perhaps be seeking advice from a professional. It is times like these that it is pertinent for investors to ask the question: “How can I be confident that I am getting good quality unbiased advice?” Fundamentally, investing during volatile periods like those experienced recently and maintaining your commitment to your investment strategy seems counter- intuitive. This is why so many investors make serious mistakes at critical market junctures. Emotional investment decisions are not always the best decisions and very often produce mediocre outcomes. Legendary investor Warren Buffet once said, “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information. What’s needed is a sound intellectual framework for decisions and the ability to keep emotions from corroding that framework.” Access to a good adviser can help you through these difficult times and assist you in developing a sound intellectual framework for your investment decisions. However, good quality independent advisers seem to be in short supply. This month’s article focuses on showing how to determine whether your adviser is simply a product salesman dressed up as a professional, or a true professional provider of quality advice. GETTInG STARTEd – WORK OUT WHAT YOU WAnT Choosing an adviser that is right for you may require a little effort, but the time you spend will be well invested if it helps you to achieve your financial goals and eliminates unnecessary wealth destroying fees. A good financial adviser can help you to identify and establish realistic goals, help you to create a plan for achieving your goals and most importantly, help you to stay on track and avoid making poor decisions during volatile times. The first step is deciding whether you need advice. If you do, what type of advice? ‘Financial advice’ is a broad term and can range from specific advice on superannuation, retirement or insurance to a full comprehensive financial plan. Do you want one-off advice, or advice on an ongoing basis? Also, what you are willing to pay for this advice? A good starting point for many investors is to read ASIC’s practical guide Getting Advice which is available from the MoneySmart website www.moneysmart.gov.au CHOOSE An AdvISER THAT SUITS YOU And YOUR nEEdS One way to approach this is to consider yourself the CEO of your own family investment company who is responsible for your family’s money. As CEO, you don’t manage every trade, but you do have to be able to manage and put together a team of people with the right expertise who you can trust to handle your money properly. Your first step is selecting an adviser, which is a lot like filling a job vacancy, so your approach should be similar to conducting a job interview. Like any potential employer you need to search for the right candidate and interview a number of prospects. One way to source potential candidates is to ask family, friends or colleagues for personal recommendations. You can also search online or use the Financial Planning Association’s affiliated website www. goodadvice.com.au. SCREEnInG POTEnTIAL AdvISERS Research the market and create a shortlist of potential advisers with whom you may like to work. Continuing with the job interview theme, initially screen potential candidates through a telephone interview. The following are some questions that may help determine final candidates who you can then interview personally: • Tell me about your ideal client. Ideally, you want an adviser who has experience in working with clients similar to yourself. • How long have you been practising and what are your qualifications? Personally, I would not consider hiring an adviser with less than five years’ experience and at least a degree qualification. • Ask the adviser to explain a concept to you. For example, explain active versus passive investing or tell me how you determine the correct asset allocation for clients. The best advisers are great communicators and can communicate complex ideas in a manner that is easily understood.
ADA News Bulletin September 2011
ADA News Bulletin November 2011