Now before you start to wonder where this question is going, let me tell you about a conversation I had with a friend the other day. My friend and I were having lunch and he has recently re-married and we were talking about relationships in general. Both being in the financial advice profession, we got to talking about who we would trust our respective wives to seek advice from (present company excluded), if we prematurely met our demise. We had a bit of a hard time nominating someone and yet we both know a lot of quality advisers. We didn’t analyse this in depth at the time (it would have been too D&M over a steak sandwich), but I did reflect on it later that day and here are some of my thoughts that you may also wish to ponder.
Getting financial advice is not like seeing a brain surgeon. If you need brain surgery, you only really care about the technical skill of the surgeon (though it is nice if he or she has a personality too). This led me to think that in financial advice, trust has more than one dimension:
- Trust that the Professional is competent and will perform their job with due skill and care;
- Trust that there are no impediments to the objectivity of the professional’s advice; and
- Trust that the person is a warm, caring and thoughtful human being.
Now remember, we are talking about your nearest and dearest here, so all of these points carry some serious weight. Points 1 & 3 are pretty self-explanatory but let me clarify what I am saying in point 2.
Two factors that may influence the advice provided by your adviser are:
A. How your adviser charges for their advice, and
B. If the advice business is self-licensed or licensed by a subsidiary of a product manufacturer.
Want to know more? These examples will help:
A. How your adviser charges
Let's say you want to build an investment portolio and you are tossing up between buying an investment property or starting a managed share portfolio. Your current adviser charges 1% of any assets that they manage. No prizes for guessing which option you will be encouraged to take. A true fixed-fee adviser would talk you through pros and cons of both options without an inherent bias as to the outcome.
B. How your adviser operates
Let’s say your adviser’s business is licensed by a company, known as a “dealer group”, that is majority-owned by an investment product manufacturer (think of household names in superannuation). The dealer group has an “approved product list” which effectively controls what products the adviser can recommend to clients. Which products do you think receive preferential treatment? In fact the only reason that product manufacturers own dealer groups is to create a captive audience of advisers to sell their products. Product manufacturers refer to advisers in these dealer groups as their “distribution channel”. Annette Sampson’s recent article "In search of advice instead of sales pitches" in the Sydney Morning Herald sums this up pretty well.
So you see there are a few things to consider when you are selecting an adviser ….. it was with these things in mind that The Trusted Adviser group was born.