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Selecting a Financial Adviser

Here are some important things you should check when selecting a financial adviser

Is the adviser on the register?

Adviser must be registered on the Financial Service Providers Register. This register is available online and you can search it to see if an adviser is complying with the law. You should be able to find the name of the adviser, or the name of the financial service provider that they work for. If they are not on the register, ask them why.

Registered, Authorised or QFE?

Advisers hold different types of licenses and this affects the kind of advice they can provide. There are different types of financial advisers.

Registered Financial Advisers can only sell you simple 'off-the-shelf products' like insurance, bank term deposits, and mortgages.

Qualifying Financial Entity advisers can advise you on investment products like KiwiSaver or managed funds as well, but can only sell the products from their company.

Authorised Financial Advisers have met qualification and professional standards overseen by the Financial Markets Authority and can advise on the widest range of products. Their license will set out the types of products and services they are authorised to offer.

Your adviser should tell you what type of adviser license they hold. You can also check this yourself on the Financial Service Providers Register.

Remuneration

Some advisers charge fees and some receive commissions or other incentives if you buy an investment. Some advisers receive a combination of both.

The adviser's Disclosure Statement should tell you what range of products they offer, the fees they charge and what commissions they are paid.

An adviser should give you this statement before they offer you advice and before you pay them any money. You should not have to ask for it. The statement must also tell you their experience and qualifications and any criminal convictions they have.

Role of a Financial Adviser

A financial adviser should help you make smart investment decisions. That means they should:

  • thoroughly understand the investments they offer and explain them to you in plain English
  • only recommend investments that suit your needs and situation
  • tell you if they don't offer all the investments that would suit you (e.g. recommend a broker if it would suit your risk profile to invest directly in shares)
  • tell you about other options that might better suit your circumstances, like paying off a mortgage
  • explain the risks of an investment as well as the possible rewards
  • explain their fees and commission, and tell you what they will be paid if you buy a particular product
  • give you time to decide on an investment.

An adviser should not:

  • make you feel embarrassed to ask questions in case you look foolish or na├»ve
  • make you feel out of your depth so that you give up trying to understand, and rely unquestioningly on their advice
  • encourage you to move money frequently from one investment to another.

Regulation of Financial Advisers

All financial advisers have a legal requirement to act with care, diligence and skill which means they must put your needs first and not mislead you. They must have a complaints process in place and they, or the financial services provider they work for, must also belong to a dispute resolution scheme. So if there is a dispute over an investment, you can ask someone independent to resolve it.

In addition, you can complain to the Financial Markets Authority if you have concerns about the behaviour of a financial adviser.

FMA also licenses and monitors Authorised Financial Advisers and Qualifying Financial Entities. From July 2011, only Authorised Financial Advisers and Qualifying Financial Entities can offer investment planning services, or personalised advice on complex products.

FMA will check that Authorised Financial Advisers have met the minimum education standards and are meeting professional standards.

FMA will monitor that Qualifying Financial Entities are taking responsibility for their advisers.

From July 2011, advisers must also have minimum qualifications and meet professional standards. These standards include only offering products that suit the client's needs, putting the client's interests before their own and disclosing important information to the client.