Under New Zealand law, only Authorised Financial Advisers (AFA’s) or Qualifying Financial Entity Advisers (QFE’s) can give personalised advice on investment products, including KiwiSaver.
AFAs have to meet qualifications and professional standards. They can advise on complex investment products and can also offer investment management and planning services. The AFAs licence will set out the types of service they are authorised to provide.
Both AFA’s and QFEs Advisers have a legal responsibility to act with care, diligence and skill. They can save you time, and help you achieve your financial goals.
Remember it’s your money so ask the questions before you invest.
Is the adviser licensed to provide the product or service you need?
There are different types of financial advisers
- Registered Financial Advisers (RFAs) can advise on simpler products like insurance, bank term deposits and mortgages.
- Qualifying Financial Entity Advisers (QFE advisers) for example bank staff, can only advise of products provided by their company and can advise you on the same products as RFAs.
- Authorised Financial Advisers (AFAs) have met qualifications and professional standards. They can advise on investment products and can also offer investments management and planning services.
Is the adviser on the register:
You can find out more about the financial adviser you are dealing with on the public register at www.fspr.govt.nz
If a person giving you financial advice is not on the register when they should be then don’t deal with them and let FMA know.
What an adviser should do: If an adviser is giving you personal investment advice you should expect them to do the following;
- Provide you with their Disclosure Statement before giving advice.
- Only recommend investments that suit your needs and situation.
- Explain the risks of an investment as well as the possible rewards.
- Give you time to decide on an investment.
- Always place your interests before their own.
- Tell you about other options that might better suit your circumstances, like paying off a mortgage.
- Tell you if they don’t offer all the investments that would suit you (for example; recommend a sharebroker if it would suit your particular needs to invest directly in shares)
An adviser should not:
- Make you feel embarrassed to ask questions.
- Make you feel out of your depth so that you give up trying to understand, and rely on their advice without question.
- Encourage you to move money frequently from one investment to another.
- Place their interests before yours.
5 QUESTIONS TO ASK YOUR FINANCIAL ADVISER
1. How do I know what you are recommending is the best option for me?
Your adviser should put their recommendation in writing, setting out what they’re recommending and why.
Has your adviser asked you lots of questions about your circumstances and needs?
What is your tolerance for the ups and downs of investment markets?
What are your financial goals?
Think about: Has the adviser helped you prioritise your financial objectives, explained and discussed choices with you, and developed a strategy to help you achieve your objectives.
2. What are the risks of this investment?
All investments carry risk. Your adviser can’t protect you from investment risk, but it’s their job to ensure you understand what you are getting into.
Has your adviser provided clear and simple explanations about how the investment(s) you’re considering will work and what could go wrong.
If your adviser is advising you to change from another product, they must tell you the costs as well as the benefits of the switch, or tell you that they cannot provide that comparison because they are not familiar with the other product.
Most investment products will have an investment statement which your adviser must provide to you. It is very important that you read this information. Your adviser will be able to explain terms that may not be familiar. You can also request a copy of the prospectus which provides more details about the product.
Think about: Do you understand how you can make, or lose money from this investment.
3. What will I pay?
Some advisers charge a fee-for-service. Others charge a commission or may receive sales related incentives. Details of any fees or commission that apply must be provided to you in writing in a formal disclosure statement before you pay the adviser any money.
Think about: Are the adviser fees reasonable for the services you will receive?
4. What information will I receive about my investments?
Find out how often you will receive reports or transaction statements showing the value of your investments and the fees and taxes paid. It’s important to have this information so you can watch out for warning signs that something may be going wrong.
If your adviser is providing you with ongoing service, ask how often they’ll contact you. Remember circumstances change, so it’s important to review your plan at least once a year.
Think about: Do you understand how to interpret the financial reports you’ll receive?
5. How can I get my money back?
If you’ve agreed to a fixed term investment you may need to pay a penalty and/or fee to get your money back. Or you may make a profit or loss, depending on the price of the product at the time you want to sell/withdraw it. There may also be restrictions, for example, units in some managed funds can only be sold at the end of a month, or there might be a limited market for some types of products.
Investments in KiwiSaver and other superannuation funds are often locked in until you retire. There may be some exceptions.
Think about: Have you got enough money readily accessible if you need it? Some advisers may recommend you put ‘emergency’ money in a cash fund.