Have you ever surfed the internet and seen something like “don’t pay thousands of dollars to a dentist to fix that sore tooth, download my free ebook – do it yourself dentistry, for everything that you need to know”?
Or how about “people who tell you you need a qualified electrician to hook up your solar panels are just trying to steal your money. Take my 3 part mini course and do it yourself. I haven’t burnt down my house, and neither will you!”
Hopefully not, though on the internet, perhaps I’m being optimistic.
Yet recently I came across a financial web site that said “Don’t see a licensed financial planner, they only want to sell you something”, whilst at the same time the website urged readers to buy their books, online courses, and other products paying affiliate commissions.
I’m not sure why it is that so much financial content is published by people who don’t possess the qualifications and experience to give such advice, but today I wanted to briefly run through what you gain from seeking financial advice from someone who is licensed and qualified to give that advice.
Whether it’s doctors, plumbers, engineers or teachers, governments set up licensing and registration systems with one goal in mind – protection of the public. You.
It’s the same reason roads have speed limits, and life savers patrol our beaches – because sometimes bad things, unwanted things, have happened. We as a society learn from them, and take steps to prevent them happening again.
When it comes to money and investing, there’s plenty of scope for bad things to happen. That’s why in Australia the regulation of financial advice is so stringent. It provides you with safety.
As a starting point all financial planners must be registered with ASIC and demonstrate that they possess the necessary skills to provide advice. You can access that register here.
Advisers then need to be authorised to provide advice by an entity holding an Australian Financial Services License. In my case, that’s an entity called Sprout Financial that I and another financial planning colleague own. In some cases advisors might work under a licence holder from one of the banks or insurance companies. It’s important that when you engage a financial planner you understand who the licensee is that they operate under, and are comfortable with that relationship.
The License holder is responsible for the advice that the advisor provides. They will hold Professional Indemnity insurance, so that if there is a break down in process and you suffer a loss as a result, you are protected financially.
Now it’s important to point out that this insurance won’t protect you from the normal ups and downs of markets. Investments entail risk, and it is this risk that results in you generating returns higher than cash.
All Australia Financial Services Licensees will also be a member of the government’s complaints handling body, the Australian Financial Complaints Authority. This provides you with a way initiate a complaint about the services of a licensed advisor, without having to spend thousands of dollars on lawyers.
Both financial planners, and their licensees, also have regular audits.
Planners also have a legal responsibility to act at all times in a client’s best interest. This is really important to understand. Advisers have a legal responsibility to put your interests ahead of their own. If you hear people say that a financial planner is only trying to sell you something to make money for themselves, understand that if that were true, the adviser would be breaking the law.
The laws to protect you when obtaining financial advice are very strong today, but they haven’t always been. Financial Planning as a profession is still quite young, and it takes time to build up the necessary checks and balances.
Many financial planners, myself included, took it upon themselves to adopt higher standards of professional conduct long before the laws caught up. This was achieved through the Certified Financial Planner designation. When looking for a financial planner, I would encourage you to look for one with this designation, typically abbreviated to CFP. It is a sign that your advisor takes their profession seriously. To have obtained the CFP designation, they will have done considerable study, and have several years of experience dealing with people and providing advice. They also have requirements for ongoing study to ensure their knowledge remains up to date.
A final reason I would suggest you seek your financial advice from someone qualified and licensed to provide it, is that they are dealing with people just like you day in and day out. Chances are they’ve seen someone with your exact problem before, and they’ve seen how that can be resolved. So you’re gaining the benefit of their past experiences.
The internet and social media provide a megaphone for anyone with a strong opinion. But just as I wouldn’t suggest you seek heart surgery from the local butcher down the road, the best way for you to avoid potential financial disaster is to avoid the urgings from those not qualified to give financial advice, and instead seek advice from an appropriately licensed and qualified financial planner.
Resources & Links
- Podcast Version
- Financial Advisers Register
- Sprout Financial
- Australian Financial Complaints Authority