The Value of Choosing the Right Financial Advisor

Lawyers have a saying: “A lawyer who advises himself, has a fool for a client”. Lawyers recognise that no matter how smart they are, they cannot effectively separate themselves from the emotion and bias that accompanies personal matters. Good business managers apply the same logic. That is why we have boards of directors, project committees and executive teams.

Making quality financial advice accessible

The 2019 Banking Royal Commission uncovered systemic flaws in the financial advice industry that led to a series of reforms, building on the Freedom of Financial Advice reforms commenced in 2013. The objective was to remove conflicted remuneration, establish higher ethical and technical standards and increase consumer confidence.

Having witnessed the devastation these flaws caused people during the GFC, I established Korff Wealth in 2013 to embrace the FOFA reforms and provide our clients with excellent advice at a fair price. Unfortunately, established advice practices and larger financial institutions have found it far more difficult to adapt. In recent years, the industry has seen not only the large banks close or spin off their advice arms, but approximately 25% of the entire profession leave.

Ironically, while no doubt improving the quality of advice, the reforms have reduced the average consumer’s access to advice and substantially increased the cost. Fortunately, it seems the Federal Government acknowledges that the reforms may have been overdone and is considering fine-tuning some of the less valuable red tape required of firms like ours.

Why use a financial adviser?

In short, using a financial advisor will help you build your wealth and achieve your financial goals more effectively than you would on your own (net of fees).

A recent study commissioned by fund manager Russell Investments estimates that on average people who use a financial adviser are 5.8% pa. better off than their non-advised peers (our ongoing advice fees are typically less than 10% of that number). They broke this value added down into the following components:

  • Risk Management
  • Behavioural Coaching
  • Choices and Trade-offs
  • Expertise
  • Tax Planning

A separate study by accounting body, CPA Australia, estimates that if all Australians could access financial advice, the economic uplift would amount to $630 billion a year.

Sorry for blowing our own trumpet, but that’s quite compelling.

How to choose a financial advisor

However, if you do not have a finance background, how do you choose a financial adviser? What questions should you ask? Below are my top tips.

  • Credentials: There has been a lot of criticism recently of the low level of technical qualifications required of financial planners. Rightly so, in my view. All of our financial planners at Korff Wealth have tertiary qualifications in finance and decades of experience with world class institutions.
  • Performance: In boom times, it’s easy to look good. The test is how advice and strategies hold up under pressure. At Korff Wealth our proprietary portfolios have comfortably outperformed established benchmarks since the beginning of the COVID-19 pandemic.
  • Conflicts of Interest: As the banks found out, it is very difficult to provide objective advice when the financial planner is employed by the institution selling the product. Consider what financial or other relationships in the background might impact the advice you receive.
  • Resources: Financial advice requires thorough research and specialist skills in many highly technical areas. Ask about the team and resources backing up your adviser.
  • Longevity: Forming an effective relationship with an adviser takes time. Consider how long your adviser will be around for and is she/he accountable to the local community.
  • Language: There is a lot of technical jargon in finance. Your adviser should be able to explain technical concepts in language you understand.
  • Cost: Removal of commission based income for financial advice is the best thing to have happened in financial services since super was invented. However, it means that we now pay professional fees for advice. Taking into account the above factors and what’s at stake for you, consider the net value added, not just the price.

At Korff Wealth, our first meeting is always free of charge and obligation to allow prospective clients time to ask these questions and decide whether we are the right fit for them.

If you want a better financial future for you and your family, contact one of our advisers today on (02) 6686 6678. Already a client? Let us know if there’s anything we can improve on and share us with your family and friends as we’ve built our business on word-of-mouth.

Campbell Korff.