Before you search for a financial adviser, I suggest you read my book Rich Enough? A Laid-back Guide for Every Kiwi, which you can buy at a discount here.
This book is pitched at New Zealanders with no financial knowledge. In many cases, it will give you enough information to run your own finances simply and well. It’s not hard. I think some people in the financial world make it seem more complicated than it is, in the hopes you will use their services.
If you still think you need financial advice, reading the book will leave you much better placed to understand what your adviser is doing.
How financial advice is regulated
Financial advice is regulated by the Financial Markets Authority (FMA). I strongly recommend that anyone thinking of using the services of a financial adviser reads what the FMA says here.
Read all the relevant sections listed on the left side of the page — “How do I find an adviser” etc. And use the suggested questions in your search.
How you pay for advice
In the section on the FMA website called “Paying for financial advice” it says:
“Generally, advisers are paid for advice in two ways:
“Directly — via a fee for the service the adviser has provided, or:
“Indirectly — the adviser is paid a commission from the providers whose product you sign up to. You pay nothing upfront for this, but you should know this and recognise that you may be offered a limited choice of options from only one provider.
“You might also pay an ongoing fee — Some advisers are paid a ‘trail commission’ where money is paid to them by a supplier of a product, for the duration of the relationship.”
I strongly recommend using an adviser who charges you a fee — just as a lawyer or accountant would. If, instead, the adviser is paid by commission from a provider of financial products, they will be incentivised to receive the highest commission, rather than putting you in products that are best for you.
Of the advisers who charge a fee, some charge by the hour while others charge a fixed fee and/or a percentage of the money you invest with them. Generally, I think hourly or fixed fees are preferable. But some advisers put up good arguments for percentage fees. Discuss with a potential adviser how they charge and why.
Some advisers who charge ongoing “monitoring” fees don’t seem to do much for that money. A good adviser should be happy to explain how they monitor. Ask. (If this or any other question feels awkward to ask, say Mary told you to!)
Choosing an adviser
It’s not wise to choose an adviser based largely on recommendations from friends or family.
As the FMA puts it, “Your friend or family member is likely to have different financial objectives to you, and if they’ve only recently taken advice, it’s hard to tell whether an adviser has done a good job. Often this isn’t clear until years after the advice has been given.
“It’s a good idea to ask your adviser for examples of how they’ve successfully helped people similar to you.”
A good first step is reading the websites of advisers who operate near you — including advisers who say they are willing to travel to your area. Check that they charge fees only. If that’s not clear on their website, move on.
Find several advisers whose approaches appeal to you. Then email them, briefly outlining your situation and asking how they could help you. If they don’t reply promptly, give them a miss.
When you have a few “finalists”, ask to set up a free first meeting, or at least a free phone conversation. Interview the advisers as if you are hiring them for a job — which is what you are doing! You should be in charge, not them. Take notes during your meeting.
Key things for you to consider:
- Do you understand what the adviser is telling you? If you’ve read “Rich Enough?” you should be able to follow what they are saying. If not, it’s their fault, not yours!
- Is what they are proposing fairly simple? I’ve seen some ridiculously complicated plans, which I suspect are used to justify high fees. In most cases, you will invest in funds, and you shouldn’t need to invest in more than three or four diversified funds at different risk levels.
- Confirm that the adviser does not receive any commissions. See above.
- As well as paying for advice, you will pay fees charged by the funds you invest in — which will be subtracted from the returns you make. Research repeatedly shows that high-fee funds don’t necessarily bring higher returns. The Smart Investor tool on sorted.org.nz shows the average fee on non-KiwiSaver funds is around 1.5%, and on KiwiSaver funds it is lower. Don’t pay more than that — preferably less.
- Are there any other fees? Ask the adviser to estimate the total fees and charges you will pay.
- Ask who checks the work your adviser does? It’s worrying if one person makes all the decisions with nobody else to back them up.
A good way to test an adviser
A good adviser — who is putting your interests first — should always ask every client at the start if they have debt. If yes, and the interest is higher than mortgage rates, the adviser should recommend repaying that before doing any investing.
List of advisers who charge fees only
Years ago, when I started this page, I ran a list of the dozen or so financial advisers who charged fees. Since then, the number of firms listed rose to more than 60 — which has been great to see.
In 2021 I decided to stop listing fees-only advisers, partly because I received a few complaints about some of their services, and I’m not in a position to judge their performance. However, the list has been picked up on the MoneyHub website. You can see it here.