Yesterday, a journalist writing for a financial magazine asked me this question:
What are the biggest ways Australians waste money when it comes to their finances?
Here’s my answer:
Bad decisions on a $400,000 home loan can easily cost you $100,000.
If you already have a mortgage, it’s not too late to fix old mistakes (or avoid making them with your next loan).
You should review your mortgage every 2 years anyway.
Why? Because less income needed to payout your mortgage means more money for other areas of your life. Your mortgage is probably the biggest financial commitment you will make in life. It is easy to get right and just as easy to get completely wrong.
Most people are surprised to find out that a low interest rate is not the most significant factor in reducing mortgage cost and paying out a loan faster.
You won’t see lenders advertising most of the tactics available to you, as it’s not in their best interests – the longer it takes to payout your loan, the more money they make. Lenders make money by lending you as much as possible, for as long as possible and with fees as high as they can get away with.
What questions can you ask a financial adviser to help ensure you get advice that suits your interests and not theirs?
There are some great checklists available to help you choose a financial adviser, especially if you have no idea where to start. But, most focus on basic questions such as experience, professional membership and the services they offer.
While these are helpful as a starting point, they don’t get to the heart of what determines the quality of the advice and service your financial adviser provides.
I think there are a few additional questions you can ask to help ensure you get great advice and support.
Update (June 2016):
Over 11,000 people have read this article, after searching for information on financial advice fees. If you’re like them, and think you’re overpaying for financial advice (or about to), call me on 1300 369 045 or email firstname.lastname@example.org – and get a second opinion.
At some point over the next year, you may receive a Fee Disclosure Statement from your financial planner. If you know what to look for, this statement will help you work out if your financial adviser is worth their money.
As a part of Future of Financial Advice (FOFA) reforms, all financial planners who charge an ongoing fee for their service must give their clients a Fee Disclosure Statement (let’s call it an FDS). That’s for any advice fee your planner charges you on an ongoing basis, beyond 12 months.
This law is supposed to ensure you are told what you’ve paid for ongoing services and list what services you actually received.
But, the Fee Disclosure Statement is very basic. You need to ask additional questions to ensure you are not wasting your hard earned money on support that doesn’t benefit you, doesn’t suit your needs or is simply overpriced.
The FDS will give you key information for the preceding 12 months:
So lets look at each section.