There are plenty of financial advisors to be found in Melbourne. There are hundreds of registered practitioners in the city, ranging from independent practices in South Yarra to big multi-adviser companies in the CBD. Selecting an advisor who will be the right match, will be honest about their charges, and is legally obliged to work in your best interest, not theirs, takes some searching and asking of specific questions.
The Evolving Regulatory Landscape
There have been changes to the regulation of Australian financial advice in the last ten years that exceed those of the prior three decades. Every advisor is now mandated to have a government-approved undergraduate degree at AQF Level 7 or higher, a financial advisor qualification from ASIC, and undergo a professional year prior to advising independently. In doing so, it has filtered out part of the market – the practitioners who were practising under grandfathered credential requirements. Those still left behind are better qualified in general.
Changes brought about by the Delivering Better Financial Outcomes (DBFO) Act reforms that take effect from January 2025 are related to how advisors should manage their fee arrangements. Requirements around ongoing fee consent have changed to make the process simpler and clearer: if your financial advisor charges ongoing fees, they must now get your permission to do so through new rules that will be in effect starting 10 January 2025. The previous requirement of obtaining an annual Fee Disclosure Statement has been scrapped in favour of this consent process.
Different Types of Advice for Different Situations
Not all financial advisor Melbourne do everything. Not all people who require financial advice have the same kind of need. Knowing what your primary objective is will make the search easier.
For example, a Melbourne professional in his/her thirties, concerned about his/her property portfolio is different from a couple in their fifties, having superannuation and retirement concerns. Also different will be the concerns of a small business owner who wants income protection and business succession, compared to those of a young family who want life insurance and basic estate planning.
Investment advice is concerned with asset allocation and risk management. Retirement planning and superannuation involve contribution strategy and fund selection. Income protection, life cover and trauma insurance will be part of the insurance planning advice. Tax and estate planning generally require advice that crosses the boundaries of financial planning and legal services. All advisors specialise in all these things – only some do.
Knowing what kind of advice you primarily require will help you zero in on advisors having experience in it. Also, you will not waste money by getting generalist advice for a situation requiring specialised knowledge.
How to Verify an Advisor Is Legitimate?
The ASIC Financial Advisers Register can be accessed at moneysmart.gov.au website and provides everyone with the means of knowing whether an advisor is registered, whether he/she has passed the required exam, what the AQF certification is, whether he/she has had any past disciplinary action against him/her or any banning orders.
- It is a matter of minutes and a regular routine to verify this information before you meet any advisor for the first time.
- What you are to seek: registration is valid, the AQF qualification is available and the exam is done. The other thing to see: authorisation as Authorised Representative (under whom the licence holder operates).
- What you are to watch out for: banning orders and any kind of disciplinary action noted in the register.
- FAAA Professional Practice Certification – the next step. Not many practices have this in Australia.
Fee Models: The Real Cost of Advice
There are three main models of fees used in Melbourne:
- Percentage fee based on the amount of assets under management – usually 0.5% to 1.5% of assets per year, calculated on the basis of the portfolio managed by the advisor on your behalf. The model links an advisor’s income to the results achieved with your portfolio, but also means that his/her revenues will increase along with your portfolio growth irrespective of the complexity of the advice provided.
- Annual fixed retainer – a fee for the predefined set of ongoing advisory services. More transparent from a budget perspective; requires upfront agreement on the scope of included services.
- Hourly fees – $250-$450 per hour for experienced advisors in Melbourne. Suitable for isolated consultations or when ongoing fees do not adequately compensate for the value received.
DBFO reforms have introduced additional transparency requirements into all of these models. The first question to ask before committing to any arrangement of ongoing services is: “Exactly what does the fee cover and what extra costs will it incur?”
The ‘Independent’ Question
It is very rare when Australian financial advisors can rightfully claim themselves to be “independent” according to the Corporations Act. Independence means that the advisor must not receive any commissions, volume rebates from product platforms, or any other kind of conflicted remuneration, which is a requirement that most advisors working inside dealer groups or institutionally licensed are unable to satisfy. So, when an advisor calls himself “independent” in its loose sense in his marketing materials, it makes sense to ask directly: “Are you independent under the Corporations Act?”
