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Will I Get Better Investment Advice From Advisers Who Charge Fees?

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Contributor:
Mary Holm
Mary Holm

Question:

While I am sure many consumers will welcome your proposed list, I think it should be made clear that just because an adviser charges a fee rather than receiving remuneration by some other means, that is no guarantee the advice will be sound and appropriate.

Answer:

Mary Holm: Your thoughts are echoed by others. As one adviser put it, "The list of course may be seen as Mary's endorsement, that is, the 'goodie goodies' list."

It's really important that readers don't view it that way. As I said on November 7, "being independent doesn't mean being good. Competence, knowledge and integrity are perhaps more important.

"Readers should ask about an adviser's qualifications and experience and go through the lists of suggested questions on www.sorted.org.nz (search for 'Getting the right investment advice') and www.sec-com.govt.nz (click 'Financial advice') before hiring an adviser. There is also advice on www.consumer.org.nz. I suggest you 'interview' several advisers."

Even before doing that, read advisers' disclosure statements, which should be on their websites or available if you ring them.

Look not only at the content, but also how clearly it's presented - to get a feel for the firm's communications skills.

Another important point: I'm not in a position to check what advisers have told me. I'm relying on readers to report back if an adviser doesn't stick to what they've said, and I'll report that in this column.

Since the November 7 column, I've had lots of feedback from advisers - ranging from helpful to snide or angry. On the strength of the useful comments, I've changed slightly the guarantees and promises the advisers have to commit to before being in the table. They now read:

* "I guarantee that when I give any new client investment advice or help them to make any investments, the only money or other consideration I receive is explicitly stated fees that I charge the client. Any commissions or other considerations I receive from financial firms or others are passed on in full to the client.

* "I promise to give any clients who request it a signed letter that says, 'I truly believe I have given you the best advice I can, having considered a wide range of products, and that I have told you about all real or potential conflicts of interest'."

I urge readers to ask for such a letter. Note the "new client" in the guarantee. A few advisers said they had current clients who prefer to keep getting "free" service while the adviser receives commissions. But that won't apply to new people approaching the adviser.

Advisers also had to state that they give advice on all types of investments, including property. By "property" I mean general advice in that area, not necessarily advice on specific property purchases. For example, the adviser could help a client weigh up whether to invest in rental property generally versus investing in a share fund.

Some advisers suggested we exclude advice on KiwiSaver, because hourly fees could be high relative to low KiwiSaver balances, whereas commissions might be around $5 or $10 a year. Said one, "We take the commission, disclose this and don't charge fees for KiwiSaver for now." That sounds reasonable. Readers should ask advisers how they handle KiwiSaver.

Note, too, that this whole exercise does not include insurance - only investment advice and products. Some advisers listed here do receive commission on insurance products. If readers want to go into insurance, you should ask the adviser how they will be rewarded.

And, of course, it's important to ask about fees charged upfront and ongoing fees. I think good firms should disclose all this clearly on their website and in their literature. Some advisers charge high "monitoring" fees and don't seem to do much for that money. Said one adviser on a website recently, "I like it when clients challenge me over the fees I charge because it allows me the opportunity to reinforce what we actually do for them."

A few more points:

* Many of the advisers travel around New Zealand, so if you are particularly interested in an adviser, phone or email them to ask if they could meet you.

* One adviser commented, "We would like to see the term independent adviser defined and included in the regulations and or code, which could then be used only by those that are truly independent." I quite agree. Keep your eye out for some good news on this issue shortly.

* You might notice the Australian in the table. He emailed me, "It's useful for both New Zealand advisers and Australian advisers to know where the quality is so that we can refer other people there. We're hard to find [due to our small marketing budgets compared to the 'big boys']." Fair enough.

* While you might spot two Herald columnists on the list I am not an adviser. Readers and advisers often assume I am, but I'm busy enough and happy enough in my other roles - see below.While I am sure many consumers will welcome your proposed list, I think it should be made clear that just because an adviser charges a fee rather than receiving remuneration by some other means, that is no guarantee the advice will be sound and appropriate.

Your thoughts are echoed by others. As one adviser put it, "The list of course may be seen as Mary's endorsement, that is, the 'goodie goodies' list."

It's really important that readers don't view it that way. As I said on November 7, "being independent doesn't mean being good. Competence, knowledge and integrity are perhaps more important.

"Readers should ask about an adviser's qualifications and experience and go through the lists of suggested questions on www.sorted.org.nz (search for 'Getting the right investment advice') and www.sec-com.govt.nz (click 'Financial advice') before hiring an adviser. There is also advice on www.consumer.org.nz. I suggest you 'interview' several advisers."

Even before doing that, read advisers' disclosure statements, which should be on their websites or available if you ring them.

Look not only at the content, but also how clearly it's presented - to get a feel for the firm's communications skills.

Another important point: I'm not in a position to check what advisers have told me. I'm relying on readers to report back if an adviser doesn't stick to what they've said, and I'll report that in this column.

Since the November 7 column, I've had lots of feedback from advisers - ranging from helpful to snide or angry. On the strength of the useful comments, I've changed slightly the guarantees and promises the advisers have to commit to before being in the table. They now read:

* "I guarantee that when I give any new client investment advice or help them to make any investments, the only money or other consideration I receive is explicitly stated fees that I charge the client. Any commissions or other considerations I receive from financial firms or others are passed on in full to the client.

* "I promise to give any clients who request it a signed letter that says, 'I truly believe I have given you the best advice I can, having considered a wide range of products, and that I have told you about all real or potential conflicts of interest'."

I urge readers to ask for such a letter. Note the "new client" in the guarantee. A few advisers said they had current clients who prefer to keep getting "free" service while the adviser receives commissions. But that won't apply to new people approaching the adviser.

Advisers also had to state that they give advice on all types of investments, including property. By "property" I mean general advice in that area, not necessarily advice on specific property purchases. For example, the adviser could help a client weigh up whether to invest in rental property generally versus investing in a share fund.

Some advisers suggested we exclude advice on KiwiSaver, because hourly fees could be high relative to low KiwiSaver balances, whereas commissions might be around $5 or $10 a year. Said one, "We take the commission, disclose this and don't charge fees for KiwiSaver for now." That sounds reasonable. Readers should ask advisers how they handle KiwiSaver.

Note, too, that this whole exercise does not include insurance - only investment advice and products. Some advisers listed here do receive commission on insurance products. If readers want to go into insurance, you should ask the adviser how they will be rewarded.

And, of course, it's important to ask about fees charged upfront and ongoing fees. I think good firms should disclose all this clearly on their website and in their literature. Some advisers charge high "monitoring" fees and don't seem to do much for that money. Said one adviser on a website recently, "I like it when clients challenge me over the fees I charge because it allows me the opportunity to reinforce what we actually do for them."

A few more points:

* Many of the advisers travel around New Zealand, so if you are particularly interested in an adviser, phone or email them to ask if they could meet you.

* One adviser commented, "We would like to see the term independent adviser defined and included in the regulations and or code, which could then be used only by those that are truly independent." I quite agree. Keep your eye out for some good news on this issue shortly.

* You might notice the Australian in the table. He emailed me, "It's useful for both New Zealand advisers and Australian advisers to know where the quality is so that we can refer other people there. We're hard to find [due to our small marketing budgets compared to the 'big boys']." Fair enough.

* While you might spot two Herald columnists on the list I am not an adviser. Readers and advisers often assume I am, but I'm busy enough and happy enough in my other roles - see below.

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.      

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