A practical guide to personal financial advice Finding the right financial adviser and advice that works for you. Getting advice

Transcription

1 A practica guide to persona financia advice Finding the right financia adviser and advice that works for you Getting advice

2 About ASIC The Austraian Securities and Investments Commission (ASIC) reguates financia advice, financia products and company aws to protect you. Our consumer website FIDO at offers you free and impartia tips and safety checks about the financia products and services we reguate. In this booket Essentia facts about financia advice 4 What advice do you want? 9 Choosing your adviser 12 Working with an adviser 26 Does the advice meet your needs? 30 Carrying out the advice 47 More hep 54 How can this booket hep you? ASIC and the Financia Panning Association of Austraia (FPA) want you to be we-informed and confident about getting financia advice. With this booket, you be starting off on the right foot with tips about: deciding if you need persona advice finding the right adviser working effectivey with your adviser getting advice that suits you. You may find that not a the ideas in this booket appy to your particuar circumstances. This booket has been prepared with the FPA, representing most of Austraia s icensed financia panners. Key tips for getting advice Dea ony with a icensed financia advisory business Take the time to find the best person for your needs Make sure the advice suits you and offers vaue for money Information in this booket is current at the date of pubishing, May 2009.

3 Essentia facts about financia advice What is persona financia advice? Financia advice heps you make decisions about your money. Persona advice considers your own objectives, financia situation or needs, and then recommends strategies and one or more financia products to suit you. Good advice from an experienced, we-informed financia adviser can hep you save money and become more financiay secure. Genera advice and financia information, that s not personaised for you, can aso be extremey usefu. Who can give you persona financia advice? Generay, the ony peope permitted by aw to give you persona financia advice are those who work for, or represent, a financia advisory business that hods an Austraian financia services (AFS) icence. Licensed advice covers superannuation, insurance, shares, managed funds as we as many basic banking products. Under panned changes to the aw, expected to commence from the second haf of 2009, ASIC wi be responsibe for reguating credit products, as we as businesses that se, arrange or advise on them. An advisory business that gives persona advice must: give persona advice that suits you take ega responsibiity for its staff and representatives act efficienty, honesty and fairy meet standards designed to protect you against something going wrong. Do you need persona financia advice? Persona advice can be vauabe, but wi take time to prepare and wi cost you money. Not everybody needs persona advice. Many peope hande their own finances successfuy, incuding ooking after their super, insurance and investments. You wi have to put in some time and be wiing to earn. There s a ot you can do to teach yoursef about financia matters, see More hep on page 54. Persona advice often heps most at turning points in your ife. Some typica situations foow. Getting advice 5

4 Life stage Panning to retire Advice you may need Detaied advice about how to get the most income in retirement, without taking undue risks. Benefits and cost of persona advice Can save tax and make you eigibe for vauabe government benefits, incuding the age pension. Depending on your circumstances, can be fairy costy. Check fees and any commissions that appy. Life stage Retrenchment Advice you may need Advice about what to do with your retrenchment payout, and whether to ro it over into super. Benefits and cost of persona advice Advice can avoid expensive mistakes. Depending on your circumstances, can be fairy costy. Check fees and any commissions that appy. May better suit peope with arger payouts. Life stage Changed financia needs, for exampe: having chidren inheriting money paying off the mortgage at ast separating from your partner. Advice you may need Managing your new situation, broad advice about suitabe strategies. Possiby recommendations about what financia products to buy. Benefits and cost of persona advice Advice can hep you take contro and make the most of your money. It can hep you make important changes to address your changed financia needs. Depending on your circumstances, can be fairy costy. Check fees and any commissions that appy. Learning more about money and doing some of the basics yoursef may be a ess expensive option. 6 Getting advice Getting advice 7

5 What advice do you want? What s it going to cost? Advisory businesses set their own fees, and can charge: a commission on products they se a percentage of the assets they re ooking after by the hour for the work they do. You may be charged a combination of a these fees. Commissions and yeary percentage charges are very common. You get a financia services guide that expains the adviser s fees. Be prepared to shop around and to ask advisers to expain the benefits you get for the money you pay. We say more about the importance of fees and commissions in Fees and charges on page 19 and What s it a going to cost on page 39. You re much more ikey to get good advice if you prepare in advance. Take a cose ook at your financia situation, and think over what you want advice about. ASIC s free consumer booket Your money can hep you make a start. Ca Infoine on or go to FIDO ( to get a copy. Gather your persona information Good persona advice buids on good persona information. The more your adviser understands about you, the better their advice shoud be. You aso pay fees to the company that issues the financia products you buy. These are set out in the product discosure statement. 8 Getting advice

6 Before seeing an adviser, coect this information: What do you want to achieve financiay? What do you own and what do you owe? Your assets incude your home, super, car, shares or other investments and persona property. Your debts incude mortgages, oans and outstanding credit card baances. What are your income and expenses? FIDO s Budget panner cacuator can hep you coect this information ( Who depends on you financiay and what do you want to provide for them? Do you have insurance? What for and for how much? Work out what you want Make some notes about what you want before you start ooking for an adviser. Your notes can hep you choose and, ater on, check that the advice wi meet your needs (it s fine if you change your mind about some of these matters ater). What do you want your adviser to do? Give you an overa financia pan? Advise you on a particuar probem and compare various options? What are your goas? What sort of ifestye are you ooking for? Check you have not overooked something important? What are your priorities? Just set things up for you, or hep you in future as we? 10 Getting advice Getting advice 11

7 Choosing your adviser Choosing your adviser is an important persona matter. Do some research and aim to tak with a few advisers before you decide. Some wi do a better job than others. There are penty of advisers to choose from. Look for someone who: wi put your needs first works often with peope in your situation wi fit in with you personay. Shopping around for an adviser may seem time-consuming or fee awkward, but it s much better to shop around now than have a bad reationship ater. How to find some names Tak to your famiy, friends or coeagues or anyone who s seen a financia adviser. Find out about their experiences and whether they have been happy with their advice. Ask about the good points and the pitfas. You coud aso ask your other professiona advisers for suggestions. For members of the Financia Panning Association in your area, refer to the FPA s Find a Panner service at or ca Ony tak to advisers who are empoyed by or who are authorised to represent a icensed advisory business. ASIC icences and reguates the financia advisory industry so that it operates efficienty, honesty and fairy. You can check icence detais, or see if we ve banned someone from advising, for free through our consumer website FIDO ( or by phoning Infoine on Licensing gives you more protection if something goes wrong, incuding the right to a free and impartia hearing of consumer disputes. Getting advice 13

8 Choosing an advisory business Name of advisory business Advisory business A Advisory business B Advisory business C Name of AFS icence hoder if different Owned by or associated with any other companies? If yes, which? Yes/No Yes/No Yes/No Services offered Seems reevant to your needs? Yes/No Yes/No Yes/No Products restricted in any way? If yes, how? For exampe, they recommend ony their own brand or their parent company s, or imited range using an approved product ist? Yes/No Yes/No Yes/No Fees and charges Initia advice fee? Yes/No Yes/No Yes/No How are advisers paid? For exampe, saary ony, saary pus bonus on saes, commission ony 14 Getting advice Getting advice 16

9 Start with the financia services guide Phone each business and ask them to send you their financia services guide which gives you the key information you wi need to hep you decide if you wish to use their services such as their fees, how to make a compaint and the business s insurance or other compensation arrangements. A icensed advisers must produce one. If they don t send it, cross them off your ist straight away. Use our Choosing an advisory business worksheet (on pages 14 16) to coect key information about each adviser, so you can easiy compare their services and costs. If you can t find the answer in the financia services guide, make a quick phone ca to find out. Who owns the business? Ownership of the business can affect the services and products you re offered. For exampe, an advisory business may be aowed to offer ony the parent company s products. Many advisory businesses are owned by major financia institutions ike banks, fund managers and ife insurance companies. Even if they operate under a different name, the financia services guide wi te you if they re owned or associated with other companies. Ony a few financia advisory companies are independenty owned. NOTE Product restrictions can be especiay important with super, because the adviser may not give advice about your current fund. If your potentia adviser is not aowed to give fu advice about your fund, it may be difficut to advise you. For exampe, many advisers don t advise about industry funds, see our free booket Super decisions. Ca Infoine on or go to FIDO ( to get a copy. Services and products offered Check if the services offered cover your needs. For exampe, some advisory businesses may speciaise in retirement panning or weath accumuation (see Questions: Choosing your financia adviser on pages 22 25). Product restrictions can affect you. We ve aready mentioned that some businesses are imited to products issued by themseves or their parent companies. Other businesses may offer a wider seection, but may not cover the whoe market. Some businesses may imit the number and range of products that an adviser can recommend to what s caed an approved product ist. Fees and charges You wi often pay a once-off fee for getting advice. On top of that fee, most advisers get paid commissions and bonuses on financia products you buy. Often they coud earn more if you buy a particuar product compared with another that coud be just as good or even better. This can set a up a confict of interest between what s good for your adviser and what s good for you (the aw deas with this potentia probem by requiring advisers to manage conficts and aso to te you about a commissions). Good advisers put your interests first anyway, but bad advisers may not. We come back to this issue when we discuss the products your adviser recommends, see What s it a going to cost on page Getting advice 18 Getting advice Getting advice 19

10 Setting up the first meeting Contact the business and make an appointment to tak with one of their advisers. Ask to speak with an adviser, not a junior empoyee, and say you need about 30 minutes. Say that you re ooking for an adviser who woud best suit you, and you don t want any advice or to fi in any forms or make any commitments at this stage. For the first meeting, you need: your notes on your financia goas and what you want from the adviser, and some brief information about your financia and persona situation. (This wi hep the adviser expain what they can do for you. You won t need a your paperwork now, because this meeting is intended for you to get to know more about the adviser, not for the adviser to find out a about you.) a copy of the questions we suggest you ask ( Questions: Choosing your financia adviser on pages 22 25) some notepaper to write down the answers. What to isten for A good first meeting wi invove each of you sharing the conversation. Begin by saying you are ooking for an adviser, and you fee they may be abe to hep you, but you won t be making up your mind unti you ve seen 2 or 3 more. Say that you may make some notes to hep you remember things. Invite the adviser to give you anything in writing that wi hep answer your questions. You shoud get the opportunity to hear about the adviser s experience, the kind of peope they advise, the kind of financia products they advise on, and their quaifications. Pay attention to important cues about the adviser. Do they: make you fee comfortabe about asking questions? encourage you to take your time? want to understand your situation thoroughy before giving any advice? Being taked at, put under pressure or tod there s ony one right way to do things is not a good sign. You re ooking for an adviser, not a saesperson. 20 Getting advice Getting advice 21

11 Questions to ask Beow and on pages are some suggested questions to keep the conversation going, with some comments about what to isten for. Choose one or two from each section, as you may not have time to ask them a. Get the adviser to do most of the taking but keep them to the point. Ask open questions ike What experience do you have?, and avoid questions that just have a yes or no answer. Ask about anything you fee unsure of. How to decide After you ve met a your possibe advisers, compare how each adviser answered your questions. Note each adviser s strong and weak points. Score each adviser from 1 to 5 against each heading on our ist of What you need. Give a score for how you fee overa about being free to ask questions and whether you got a cear answer. Feeing pressured or uneasy can be warning signs that an adviser won t work out for you. See who gets the highest score. Remember you re comparing advisers, not comparing their advice. Questions: Choosing your financia adviser What you need Persona experience in successfuy advising peope ike you How ong have you been giving financia advice? What to isten for The more experience, the better. If ess than 2 years experience, ask: Wi anyone ese in the business take a ook at the advice you give me? What kind of cients do you mosty see and what are your cients mosty trying to achieve? Do you take a specia interest in any particuar types of financia products? Are there any financia products you don t advise on? Peope with concerns and goas ike yours, for exampe, taxation, super, retirement panning or socia security Experience in the products you re interested in, for exampe, insurance, super, retirement income products, shares, managed investments If yes, do these restrictions affect you? 22 Getting advice Getting advice 23

12 What you need Someone who puts their cient s needs first How do you go about understanding a new cient? How do you dea with a cient who may have conficting financia objectives? What you need Reasonabe fees How much is this advice ikey to cost? What you need High professiona standards How do you keep up to date with everything that s happening? Are you a member of a professiona association? What you need Quaifications reevant to advising What quaifications do you have? What to isten for Aims to get a fu picture of your circumstances and needs. Wi ask you a ot of questions. Wi probaby need a separate appointment to do this Wi expain and discuss choices with you. Then does research and prepares advice for you to take away and consider What to isten for Cear expanation of fees and commissions the adviser receives, pus genera expanation about any ikey product fees What to isten for Attends courses and training run by universities, Kapan Professiona, FPA. (Not just in-house marketing seminars.) Member of FPA, stockbrokers professiona body, Kapan Professiona, etc. FPA members are required to abide by the FPA s enforceabe Code of Ethics and Rues of Professiona Conduct What to isten for Quaifications in finance, economics, accounting, or financia panning, for exampe Certified Financia Panner 24 Getting advice Getting advice 25

13 Working with an adviser After you have chosen an adviser, make an appointment to get your advice. This may happen in stages. For exampe, the adviser wi first coect detaied information about you and then hod another meeting to expain the advice and hand over important documents. You may aso receive a contract or terms of engagement setting out the exact services suppied and how and when you must pay various fees and charges. What your adviser needs to know Give your adviser accurate information. What s needed wi depend on what advice you re asking for. Make sure your adviser ceary understands what you want advice about, and what you re aiming for. Expect to te your adviser: your age and any major heath probems who depends on you financiay or for other support your income and expenses and how these may change, for exampe, famiy pans, education expenses, trave, house renovations or new car your assets and iabiities, incuding your super, insurance, tax, income and what you might inherit. For retirement panning advice, expect to answer some very detaied questions, because your adviser wi have to think about tax and socia security issues, as we as your ikey retirement needs. If your adviser doesn t ask for this information, consider ooking for a better one because you may end up with poor advice. If you can give ony imited or incompete information, te your adviser. Your adviser needs to know if they have ony part of the picture. They wi warn you that their advice wi be based ony on what you have tod them. Getting advice 27

14 Discuss the risks you re wiing to take At an eary stage many advisers wi ask you about your attitude to risk, especiay if you re ikey to be making some investments. Investment advice aims to strike a baance between earning enough money to meet your needs and avoiding the risk of unacceptabe osses. IMPORTANT Take your documents home to read before you agree to anything. Persona advice can often be detaied, and you may receive a fair bit of paperwork to consider. Be prepared to set some time aside to go through your advice carefuy. You probaby find it easier to do this in stages, beginning with the overa strategy and then moving on to the detai. When you re ready to ook at the detais, use the Your advice checkist on pages to hep you find important information. Advice that invoves more risk than you re comfortabe with won t work. If you re more conservative, it s often better to expore aternatives such as working a itte onger or accepting a ess expensive ifestye. Make sure you and your adviser agree on what s meant by risk abes ike conservative, moderate or aggressive. A investments have risks, see Investment risks and returns on page 43, or get the FPA s free booket The Trade Off: Understanding Investment Risk. Receiving your advice Often your adviser wi expain the advice face to face and then hand over various documents. The documents must incude: a statement of advice that sets out what your adviser is recommending and why they think it s suitabe for you. (However they ony need to give you a record of advice if there is no product recommendation, or your adviser is not receiving any remuneration for giving you advice, or the amount to which the advice reates is not substantia.) product discosure statements that describe each recommended product. 28 Getting advice Getting advice 29

15 Does the advice meet your needs? Your advice checkist The advice Understanding your statement of advice A good statement of advice wi be cear, concise and effective. You re paying for the advice, so it must be cear to you. Ony foow advice that you can understand. Jot down any questions that cross your mind as you read the advice, to discuss with your adviser ater. Here s a checkist of the most important things that a good statement of advice wi te you or hep you do. If you can t find or understand the information, ask your adviser. Information to ook for A document marked as a statement of advice or record of advice. Who s covered by the advice: You, your partner, or anyone ese? The extent of the advice: A or just some of the issues you asked about? Your needs and circumstances Information to ook for A correct summary of your financia and persona situation. Check for any mistakes or anything important eft out. What s recommended and why Information to ook for What financia strategies and products has your adviser recommended? Can you see how each strategy and each product wi hep you achieve what you want? Why is each preferred over other reasonabe possibiities? Getting advice 31

16 Your advice checkist (cont) What s recommended and why (cont) Information to ook for What risks and uncertainties are associated with the advice? What conficts of interest may infuence the advice, for exampe, adviser benefits? Is a recommended product on the advisory business s approved product ist? What you pay and what for Information to ook for Costs you pay for the products recommended, now and in the future Costs of switching products, incuding charges or oss of benefits, for exampe, if you switch your super fund you might ose ife insurance benefits Costs of the advice, now and in the future Whether your adviser wi review your situation in future How you act on the advice Information to ook for Steps you must take to carry out the advice Do the genera recommendations suit you? Good advice makes sense and fits we with your own needs and persona preferences. See if you can expain the genera recommendations to yoursef simpy in your own words. Or try expaining them to a partner or friend. If you understand them, and they fee right, then you can start taking a coser ook. If you fee uncomfortabe or fee in the dark, there s not much point drowning in a the detais. Sort things out with your adviser. Here are comments and issues to consider about some common genera recommendations. Saving more and paying off debts Comments and issues to consider Often the most sensibe step. Make sure savings targets are reaistic so that you can stick to them. Wi you have spare cash for an emergency? Getting tax and government benefits Comments and issues to consider It s sensibe to avoid paying unnecessary tax and to make sure you receive the government benefits you re entited to. However, advice that focuses too narrowy on tax or socia security arrangements above other financia issues can prove expensive and risky. 32 Getting advice Getting advice 33

17 Spreading your risk (or diversification ) Common genera recommendations (cont) Topping up your super Comments and issues to consider Putting more into super is often an exceent option, athough you generay cannot get your money out of super unti you reach your preservation age, see our booket Super decisions. Meeting short and ong term needs Comments and issues to consider Good advice considers both your immediate and ong-term needs. Generay, cash is fine for the shortterm, but won t buid weath. Shares and property are usuay fine if you hod them for five years or more, but you coud ose money if you give yoursef ony a year or two. Comments and issues to consider Investing sma amounts reguary can reduce the risk of investing everything just before the market drops. Spreading your money across different kinds of investments (for exampe, shares, property, and cash), and even different fund managers can reduce your risk of osing heaviy on a singe choice. Switching out of one asset or product for another Comments and issues to consider Getting rid of poory performing products or assets can make sense, especiay if performance has been poor for five years or more. Switching just to catch the atest wave can often be a mistake. It may invove extra fees. Ask your adviser to spe out the reasons in fu. Borrowing to invest Comments and issues to consider This is a riskier strategy to buid weath more quicky. The advice shoud expain why this risk is necessary, and discuss aternatives. It shoud discuss risks ike rising interest rates, osing your job or income, and how you pay back the oan. Margin oans invove additiona risks that shoud be expained. 34 Getting advice Getting advice 35

18 What products are recommended? After you ve grasped the genera recommendations, take an overa ook at the recommended financia products. These may incude investments, retirement income products, super and insurance. Many products coud suit you, and even experts may not keep track of them a. Foowing are some things to consider about the more commony recommended products. ASIC s consumer website, FIDO offers cacuators for a number of these products ( Superannuation Things to consider Super s an exceent way to invest for your retirement, but you generay can t get the money unti then. Compare retirement and insurance benefits, features and fees carefuy, as funds can differ widey. Keep fees and charges down. If you pay an extra 1% in fees each year, you coud ose around 20% of your retirement benefit over 30 years*. There may be ower cost funds that coud suit you better. Switching funds can invove extra fees and affect any insurance cover you have through your super, so get your adviser to check this very carefuy. Commony recommended products (cont) Insurance Things to consider The right ife insurance can protect you or peope who depend on you from serious financia risks such as your disabiity, iness or death. Make sure you ve tod your adviser and insurer everything that might affect an insurer s decision to cover you. If you eave something out, the insurer may be entited to reduce or refuse a caim or cance your poicy. Investments outside super Things to consider Investing in products outside super means you can get your money more readiy than if you put it in super. But you miss out on tax concessions that appy to super and which woud usuay et you save more over the ong term. * Using FIDO s Super cacuator ( 36 Getting advice Getting advice 37

19 Commony recommended products (cont) Retirement income products Things to consider Buying retirement products that keep your money inside super can save tax and give you access to government benefits. Keep enough money outside super for emergencies, because arge withdrawas from retirement income products may be difficut or may compicate your tax or socia security arrangements. Fees for these products wi reduce your retirement funds so make sure you be getting vaue for money. FIDO s Account-based pension cacuator ets you compare products and check the impact of fees ( You can use FIDO s Retirement panner cacuator to work out how much you coud save in your super unti you retire, and how much you can draw out of your super in retirement. More compex products Things to consider Some products may offer specia tax features, more unusua investments or extra persona contro and fexibiity (for exampe, wrap accounts). Specia features often cost more, so consider if you reay use them. In many cases, your adviser wi receive a commission for seing you a financia product. They may aso receive other side benefits. You have a right to know about these benefits because they coud sway your adviser s judgement. Even if the product s suitabe, there coud be other ess expensive aternatives avaiabe that may be just as good or even better. Ask your adviser to expain the differences in the products and to provide written reasons why the product they recommend is better for you. If you want to shop around, you can find independent information about financia products to hep you compare them. Newspapers, persona finance magazines and websites often carry research reports about various super and managed funds. Consumer magazines, ike CHOICE, aso compare financia products. What s it a going to cost? Fees and charges can cost you more than you might first think, and can be compicated to work out. The cost of the advice and the cost of the financia products can often get burred together. Get your adviser to write down: the tota costs in doars for the advice AND the recommended products in year 1 an estimate of your tota ongoing costs in year Getting advice Getting advice 39

20 The fees your adviser receives wi appear in your statement of advice. Usuay you can choose to pay fees in three ways: 1. Directy out your own pocket, for exampe, to prepare a financia pan. This is generay a once-off fee (known as fee-for-service). 2. Indirecty through commissions paid out of the money you invest or spend on financia products the adviser recommends. This may incude both once-off and ongoing fees charged every year you hod the product. 3. A combination of fee-for-service and commission. You can negotiate with your adviser about your preferred method of payment and the costs invoved, incuding commissions, and it s we worthwhie to do so. You aso pay fees to the company that issues the financia products you buy. Fees on investment products (especiay ong term investments such as super) can make a big difference to your savings over time. FIDO s Managed funds and Super cacuators et you compare funds and check the impact of fees ( The fees for each product are set out in the product discosure statement. Some advisory businesses may pay back or discount some fees, but wi offer no advice when they do this. An exampe of how fees work Aex has inherited $100,000 and wants advice on how to ook after it. The adviser recommends investing in a sharemarket fund, managed by the adviser s parent company. Aex aso gets some financia advice about topping up super and insurance. The adviser offers to monitor Aex s investment and keep a genera eye on things at an extra cost. Aex agrees to this. Exampe: Aex s costs in year 1 Tota costs to Aex $5,500 What the adviser receives Aex pays the adviser $1,500 for the once-off fee to prepare a financia pan The fund manager pays the adviser $2,600 out of Aex s account What the fund manager gets paid The fund manager takes this out of Aex s account $4,100 $1,400 * Based on $100,000 invested with 2% contribution fee, 2% management fee (incuding a 0.6% traiing commission to the adviser), a 0.4% adviser service fee, and the fund earning 8% each year before fees. Adviser and fund manager receipts are broad estimates ony. This is going to cost Aex $5,500 in year 1, and around $2,400 each year from year 2 onwards. Aex needs to decide if the advice and the fund are worth the cost. Here s how the payments coud get shared between the adviser and the fund manager. Exampe: Aex s estimated costs each year from year 2 Tota costs to Aex $2,400+ What the adviser receives The fund manager pays this to the adviser out of Aex s account What the fund manager gets paid The fund manager takes this out of Aex s account $1,000+ $1,400+ Our Super cacuator and Managed funds cacuator on the FIDO website ( can hep you to compare fees charged, based on your own circumstances. 40 Getting advice Getting advice 41 Getting advice 42

21 Investment risks and returns Good advice expains the risks of any recommended financia products, such as possibe oss of capita or ower earnings. Different types of investments earn different rates of return, generay refecting the eve of risk. Propery managed, risks can increase returns. But if the risk is going to keep you awake at night, there s no point getting invoved. Investment strategy What it usuay means The tabe beow shows a range of returns that you might reasonaby expect from different investment strategies over the ong term. However, each year your fund may perform better or worse than these averages, as markets move up and down. Fees and taxes wi aso reduce these returns. Expected return BEFORE you pay fees and taxes* IMPORTANT Take extreme care with high rates of return, say more than 1.5% 2% per year above the average return for the type of asset in which you invest. If your adviser suggests you can expect high returns, get a written expanation with the risks fuy expained. If it sounds too good to be true, it s probaby best to say no. Some investments, that appear to offer very modest returns, can be extremey risky. That s why it s important to consider more than just the returns when investing in something. Growth Invests 70 80% in shares or property. Aims for higher returns over the ong term and so risks higher osses in bad years. Baanced Capita stabe Invests 60 70% in shares or property, the rest in fixed interest and cash. Invests 60 70% in fixed interest and cash, athough some invested in shares or property. Aims for reasonabe returns, but ess than growth funds in order to reduce risk of osses in bad years. Aims to reduce risk of oss and therefore accepts a ower return over the ong term. Cash Invests 100% in cash. Very ow risk of osing your capita with a ower return over the ong term than capita stabe funds. 8 9% % % % Switching products If your adviser recommends changing products you aready hod, your statement of advice must expain why. Read the adviser s reasons carefuy. Most advisers wi have good reasons that make sense to you. But a few advisers might change your products just to earn extra fees and commissions. Some investments impose termination fees or penaties if you decide to stop earier than expected. Make sure your adviser checks and expains these. ASIC obtained professiona advice about these expected rates of return from icensed independent actuaries. The actuaries consuted a variety of sources incuding assumptions used by industry groups, eading asset consutants and pubicy avaiabe survey data about managed funds investment strategies. These rates are just reasonabe ong-term estimates, not guarantees. 43 Getting advice 44 Getting advice Getting advice 45

22 Check the fine print Make sure you ve received a product discosure statement or prospectus for each financia product. (You don t get these documents for shares in a company aready isted on the ASX, but read a copy of the company s atest annua report and check for recent company announcements through These documents set out what you need to know to make an informed decision, incuding benefits, risks and fees. Make sure you re getting vaue for money. Our Super cacuator and Managed funds cacuator on the FIDO website ( can hep you work this out. Read the documents your adviser gives you. If you don t understand something, ask your adviser to expain, or ask a soicitor or accountant. Aways find out what the document reay means before you sign. It s your money. Your adviser gives you advice. You make the decisions. Good advisers want you to ask questions now, not become an unhappy customer ater. Carrying out the advice Cooing off If you purchase managed funds, ife insurance, super or genera insurance, you generay get a 14 day cooing off period when you can change your mind and get your money back. (There are some exceptions, incuding buying shares.) Keep contro and keep your paperwork Keep contro over your money and investments. If you are sick or going away, it s best to authorise an independent person, a soicitor or trustee to act for you and check what your adviser is doing. If you have particuar reasons to give your adviser power to buy and se investments on your behaf, avoid ong term, open-ended arrangements. Negotiate costs Some advisers may agree to reduce fees on various products, especiay if you ask. Check if your costs incude a review of your investments from time to time or if you must pay for that service separatey. 46 Getting advice

23 Aways get receipts. Keep a your paperwork about your advice and investments yoursef so you can keep track of your money and check your reguar statements for possibe mistakes. If you do not get a receipt or statement from the company in which you invested your money within four to five weeks, contact them without deay. Check how often you wi get statements and reports about your investments. Usuay you wi receive information at east twice a year. Making payments If you are making eectronic payments to a company you re investing in (for exampe, making payments using internet banking), it s reay important to make sure that you: Check and doube-check the account number or other eectronic payment detais of the company you want to pay, which shoud be in their product discosure statement or prospectus. Getting their account number right is very important. Incude a reference or description that wi aow the company to recognise your payment. IMPORTANT Make cheques or money orders payabe ony to the company named in the prospectus or product discosure statement, adding the words on account of [your name]. This heps the company credit your account. NEVER make a cheque for an investment payabe to your adviser. (Reputabe advisers won t ask you to do this.) Protect yoursef from fraud Fraud happens, athough not very often. Act immediatey if something does not add up or ook right. Contact your adviser and if the matter is not sorted out quicky, make a forma compaint. If you suspect fraud or dishonesty, contact ASIC as we. Some investors open themseves up to fraud through iega or secret investments that they re trying to hide for exampe, from the Austraian Tax Office. Contact ASIC if you are ever offered these investments. 48 Getting advice Getting advice 49

24 Review your pans Review your pan at east once a year to ensure it is sti right for you. Keep an eye on your investments. Your circumstances may change and the market vaue of your investments wi certainy change. If you have a ong-term pan, don t panic about sma changes in the market. On the other hand, you shoud tak to your adviser if major changes occur. Many advisers can review your pan and investments for you. Check how much it costs in doars and what you get for your money. Making a compaint If you re unhappy with the advice you have received, you can compain. You shoud take your compaint up directy with the advisory business who must respond to your concerns. By aw, a advisory businesses must te you how they hande compaints. They must have a proper interna compaints process, and must aso be a member of an independent dispute resoution scheme (such as the Financia Ombudsman Service) to which you can compain if you remain dissatisfied. For more information on how to make a compaint, you can downoad a free copy of ASIC s booket You can compain from or ca ASIC s Infoine If your compaint is uphed Advisory businesses must have compensation arrangements in pace that mean they can pay caims uphed against them (for exampe, if the business s interna dispute resoution process or an independent dispute resoution scheme makes a decision in your favour). Professiona indemnity insurance (PI insurance) is the main way advisory businesses ensure they can pay caims. Not a advisory businesses have to have PI insurance, but if they don t they must have aternative arrangements approved by ASIC. For exampe, an industry sector may appy to ASIC to estabish a joint compensation fund. Stan s story Stan ost money after getting poor financia advice. He made a compaint to the Financia Ombudsman Service (FOS), which, after ooking into Stan s compaint, decided in his favour. The scheme ordered the advisory business to pay Stan $22,000 compensation. The adviser tod their insurer about the caim. Because the caim was covered by the business s PI insurance poicy, the insurer paid the business, which then paid Stan. 50 Getting advice Getting advice 51

25 When won t PI insurance cover caims? PI insurance does not cover caims or osses arising from investment performance, for exampe, if your investment doesn t perform as we as you expected. How does PI insurance work? PI insurance provides cover for your advisory business, to hep them pay you if you make a caim against them that is uphed. PI insurance must cover awards or decisions made by FOS. PI insurance aso has to at east cover caims for financia oss that are caused by breaches of the aw, such as fraud, dishonesty and negigence. PI insurance is not a guarantee that you wi get compensation for every caim that you make. Decisions about compaints and compensation are made through the compaints handing process, either by the business itsef or by FOS. The advisory business s PI insurance poicy may incude excesses and excusions that might mean the insurance company won t pay every caim (for exampe there may be a imit on the tota amount of cover provided). This may affect the advisory business s abiity to pay your compensation caim. It is aso important to understand that PI insurance covers your advisory business, not you as their customer. You can t access the insurance, but the poicy wi hep your adviser pay you any compensation they owe you. Diane s story Diane made a number of investments whie the market was performing strongy. However, when the market turned down, her investments fe in vaue and she made a compaint to her advisory business and then to the Financia Ombudsman Service. Her compaint was not decided in her favour, because the advice was appropriate to Diane s situation at the time. No one can guarantee the performance of an investment. Some advisers work with an approved product ist (see Services and products offered on page 18). If your adviser uses an approved product ist, their PI insurance may not cover caims about a product that is not on their approved product ist. (Before acting on any advice you receive, you shoud check with your adviser that the products they recommend are on their approved product ist, if they have one). PI insurance is aso unikey to cover caims if the business became insovent before you made your caim. 52 Getting advice Getting advice 53

26 More hep... Austraian Securities and Investments Commission (ASIC) Free financia tips and safety checks, incuding investment cacuators, information about shares, managed funds and retirement income products, and for hep on suspected inadequate, miseading or deceptive information or misconduct, fraud or dishonesty. Consumer website: Phone: Financia Panning Association of Austraia Ltd (FPA) To find a financia adviser, check if your adviser is a member of the FPA, discuss your adviser s conduct or quaity of service or to get a free brochure on financia panning. Website Phone: Financia Ombudsman Service (FOS) For compaints about financia advisers after you have tried to sort things out through a forma compaint to the business itsef. The Financia Industry Compaints Service (FICS) is part of FOS. Website: Phone: Centreink Financia seminars, for peope of any age about persona finance, retirement panning, and for peope facing redundancy. Free face-to-face financia interviews if you re facing redundancy. Website: Phone: Commonweath benefits and what rues appy. Phone: CHOICE Free and some pay-to-view website information, CHOICE magazine by subscription and books for sae. Website: Phone: Nationa Information Centre on Retirement Investments Inc (NICRI) Free, confidentia information over the phone and pubications. Website: Phone: Austraian Securities Exchange Ltd (ASX) To find a stockbroker, find out about ASX investment courses and seminars and ask about shares, isted securities and isted company announcements. Website: Phone:

27 or phone ASIC s Infoine on Austraian Securities and Investments Commission, May 2009 ISBN Getting advice The Austraian Securities and Investments Commission s website for consumers and investors, FIDO, offers you financia tips and safety checks. Stay in touch with a monthy emai newsetter from FIDO. You can subscribe at or by phoning Contact the Financia Panning Association of Austraia Ltd by visiting or by phoning