What financial advice is, and what good advice looks like

What advice can cover

Moneysmart’s list of things people seek help with runs from building wealth and choosing investments to planning for retirement, understanding super, and protecting income or assets. Whether general or personal, advice can take in investing, superannuation, retirement planning, estate planning, risk management and insurance, in any combination.

Moneysmart says advice can be useful at turning points in life, and gives starting a family, being retrenched, planning for retirement and managing an inheritance as examples. Some advisers specialise: in one kind of product such as life insurance, in a life stage such as retirement, or in a kind of client such as business owners.

The scope you agree

Two choices shape personal advice: how wide it reaches, and whether the relationship is one-off or ongoing. Moneysmart says the scope you agree affects what the advice costs.

Moneysmart notes that single-issue or limited advice is usually cheaper than comprehensive advice, and suggests asking for a written fee summary before agreeing to anything. The fees themselves are drawn on sheet 04, fees and statements of advice.

How it reaches you

Personal advice does not have to happen in a room. Moneysmart describes three channels.

• Face to face, which it suggests may suit complex finances or a close working relationship.
• Phone or video, where screens and documents can be shared and questions asked as you go.
• Digital advice, sometimes called robo-advice: automated advice produced by algorithms, often with no person directly involved.

Whichever channel is used, the first personal advice you receive on a topic is generally set down in a Statement of Advice.

The six marks of good advice

ASIC considers that good quality advice rests on six principles, which Moneysmart sets out. In this guide’s words, good advice:

1. meets what the client needs, and meets the law as well;
2. sharpens the client’s objectives and helps them reach those goals, or understand what stands in the way;
3. may be broad or narrow, depending on the client’s needs and circumstances;
4. leaves the client informed enough to decide for themselves whether to take up the strategies and products put to them;
5. starts from strategy, with any product recommendation following the strategy rather than steering it;
6. is communicated well, often with a Statement of Advice and a chance to talk it over.

The fifth mark is the one an elevation makes easy to see. The strategy is the structure; a product is a fitting chosen to suit it.

Who may give it

Providers of personal advice, and of most general advice, must hold an Australian financial services (AFS) licence or be authorised by someone who does. Advisers who give personal advice on investments, superannuation and life insurance must appear on the financial advisers register, and Moneysmart says one who is not on it cannot legally give you that personal advice.

The register can be searched by postcode; Moneysmart says the results come back randomised, in no particular order, and that ASIC does not endorse or recommend advisers. How to read an entry is on sheet 03, checking an adviser on the register.

Advice, information and counselling are different things

Financial information is factual: product features, interest rates, some calculators. Moneysmart says it is usually free, available from many places, and needs no licence to provide. It names Services Australia’s Financial Information Service, the ASX education centre, your own super fund, and banks’ and credit unions’ websites as places to find it.

Financial counselling is another service again: free and confidential, run by not-for-profit community organisations for people in financial hardship, with help on budgeting, negotiating with creditors and finding emergency support. Counsellors do not give personal product advice.

The legal line between general and personal advice, which decides which duties apply, is drawn on sheet 02, general versus personal advice.

Before a first meeting

Moneysmart suggests deciding first what you want from advice, since that depends on your stage of life, how much money you have and what you are trying to achieve. Advisers don’t usually charge for a first meeting, and you are not obliged to go any further than that meeting.

A selection of the questions Moneysmart suggests putting to an adviser:

• their qualifications, usual clients and specialty areas;
• what fees you will pay, how often, and what you receive for them;
• any commissions or incentives they receive for selling a product, and how they choose what to recommend;
• how they handle complaints, and how to end the agreement, including any notice period or penalty.