Financial planning step-by-step guide

Be sure you take all the steps possible to ensure your planner is working hard for you, not just looking after their own interests.
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  • Updated:10 Sep 2005


Money tree

Our survey results reveal some valuable lessons for consumers. Follow this six-step guide to improve your chances of getting a high standard of service and advice from a financial planner.

Please note: this information was current as of September 2005 but is still a useful guide to today's market.

Step 1: Do your homework

Be prepared before you even start looking for a planner. You’ll get better advice if you can be precise about what you need.

  • Prepare a household budget detailing all sources of income and summarising your living expenses.
  • Make a list of all assets and their value, and all liabilities (credit cards and other loans).
  • Make a list of your financial needs and goals for the short, medium and long term.
  • Learn as much about different investments and markets as you can. Read books, magazines, newspapers, look at websites, watch specialist TV programs and go to free Centrelink financial planning seminars. Other organisations (planning companies and fund managers) also run seminars but they may push their own services and financial products.
  • Think about how much risk you’re prepared to take when investing.
  • Make a list of all existing investments, including information about their current value, past performance and fees.
  • Get information about possibilities a planner may not know the details of — for example, whether your employer will channel more of your salary directly into super (‘salary sacrifice’) or options within your existing super fund.

Step 2: Look for a planner

Our results show that finding a good planner is a bit of a lottery. As a starting point, always ensure a planner is licensed to provide advice or is the authorised representative of a licence holder (check with ASIC by web or phone). Our study looked at the quality of advice provided by banks, large financial planning chains, small planning companies and stockbrokers. Here are the trends from our results that may help you narrow down the field:

  • Stockbrokers had significantly lower scores than other industry sectors. 69% of their plans were graded ‘borderline’ or worse. Brokers tended to concentrate on recommending shares and to overlook other essential issues such as assessing the client’s needs and goals.
  • Method of payment: Planners who worked for a fee or a combination of fee and commission often provided better advice than those who worked on a commission-only basis.
  • Market segmentation: One size doesn’t fit all in financial planning, so shop around to find a planner that’s right for you. In particular, ask if the planner provides comprehensive advice or if they’re an investment and placement service only.

Step 3: The first meeting

The planner should use it to analyse your needs, goals and risk profile. We suggest you use it to analyse the planner’s professionalism and ability to meet your requirements. Make sure you:

  • Request a copy of their Financial Services Guide (FSG) to be sent via email, fax or post before your first meeting. Read it before the meeting.
  • Discuss the planner’s background and qualifications.
  • Give the planner as much information as possible about your personal situation, needs, timeframe and attitude to risk (take along all the information you prepared in Step 1).
  • Discuss whether there are any limits to the advice they can provide.
  • Find out exactly who the planner represents and ask if they have any preference for a particular type of investment or fund manager. If so, ask them to justify it.
  • Find out about their professional indemnity insurance, what it covers and to what amounts.
  • Ask if they have their own ‘wrap’ account or master trust and if these are likely to be recommended over other investments and, if so, why.
  • Gauge the planner’s attitude to strategies like gearing (borrowing money to invest). Does it match yours?

Step 4: Negotiate your price

Find out exactly what you’ll pay for the advice given. Don’t accept the fees and commissions outlined in the FSG or described by the planner as being set in stone. Planners don’t usually tell their clients pricing structures are flexible, but you can and should negotiate.

There are several components to the overall cost of financial advice:

  • Plan fee: Our results indicate you’ll get better advice if you’re prepared to pay a reasonable fee for preparation of the financial plan.
  • Upfront commissions: Product fees and, therefore, commission levels aren’t fixed and can be negotiated.
  • Ongoing charges: Ask the planner what else you’ll pay if you go ahead with their recommended investments. Costs may include fees for regular adviser reviews, the management expense ratio (MER) for any managed fund and master trust portfolio service fees. Even an extra 1% in fees makes a big difference over the years.

Be wary of planners who say their service is ‘free’. This can mean they work for a commission that will come out of the money you invest (and commission-only planners performed poorly in this survey).

Step 5: Assessing the plan

A comprehensive financial plan should be easy to read and understand. It should clearly explain how the recommended action will meet your goals, and why this option is better than others. Comprehensive plans should contain the following:

  • Page numbers, table of contents and executive summary.
  • Accurate and thorough representation of your current financial situation, future needs and goals.
  • Accurate and thorough representation of your risk profile and investment timeframe.
  • Assessment of your current investments and justification for any recommendation to sell or keep them.
  • Information about your current tax position and an explanation of how the advice will change that position.
  • Assessment of your retirement needs.
  • Assessment of your insurance needs.
  • Assessment of your estate planning needs.
  • Easy to understand information about what the planner will earn from your investments.
  • Independent and up-to-date research on any products recommended.
  • Explanation of how any strategies or investments recommended match your goals, needs and risk profile.
  • A spread of different investment types from a range of providers.
  • Explanation of how recommended investments compare with similar products in terms of fees and performance.

If a plan fails to provide any of the above, ask the planner to fix it until you’re satisfied, or reject it.

Step 6: Ongoing reviews

Most planners offer ongoing reviews (usually annually) and portfolio management. No plan should be ‘set and forget’, but a simple review for an agreed modest fee is usually adequate unless your circumstances have changed. Beware unprofessional planners who want to change your investment mix more than necessary (to earn commission). You can negotiate the fees and terms of any ongoing service — there’s no need to accept the planner’s initial offer.

If you’re not satisfied

You can end your relationship with a planner but this can be complicated. If your money’s in a ‘wrap’ account or master trust, exit penalties may apply.

If you think your planner has behaved unprofessionally or illegally, contact the Financial Planning Association (FPA), ASIC and/or the Financial Industry Complaints Service (FICS).



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