Now it's time to take the great leap forward

By Philip Macalister

Hiring a professional adviser to help look after your investments is no different from using a doctor, lawyer or accountant. Financial planners and investment advisers are a misunderstood but essential part of the savings industry in New Zealand.

It seems the only time you're likely to hear about them is if one of their lot does something illegal. That's not often. Consequently they have a low profile.

While financial planning is a small and relatively young industry in New Zealand, those involved have done a lot to help the country save. Currently it is estimated that there are about 1500 people practising as planners, and they are responsible for the bulk of the almost $16 billion now invested in managed funds.

Anyone can be a do-it-yourself investor and put money into the managed funds that have four or five-star ratings, or go out and buy a bunch of shares. Many of the people who do this will be successful, whether through good luck or good management.

By using a professional financial planner, your chances of being a successful investor improve, and you should get a portfolio of investments put together in a way which is designed to reach a set of goals, hopefully avoid the pitfalls, and be efficient from a tax perspective.

Using a professional to help look after your finances is no different to using a doctor, lawyer or accountant. We use these professionals to look after our health, and our legal affairs, so it makes sense to have a financial professional as well.

In many cases that financial professional may be your accountant. However only a handful of the accountancy profession specialise in the financial planning area.

What should you look for when selecting a financial planner? The key point is that you need an adviser who is going to offer a service and really wants to help you achieve your goals. What you don't want is a unit trust salesman.

There are a number of questions you should ask a planner before using their services:

* How long have you been in the business?

It's worth checking an adviser's qualifications and experience. Many people have come into the industry (particularly in the early and mid-1990s) then bailed out because business was too tough. Ideally you want a planner who is committed to the profession and has experienced the market's ups and downs.

* How are you going to charge?

Fees are a big issue, and one that is much debated within the industry itself. Broadly speaking, a planner can either charge you a fee (on a per hour or per consultation basis), or can get their income from from the commissions paid by fund managers (out of the entry fee you pay for investments such as unit trusts).

It is important you know how the planner makes his or her money and that all commissions are disclosed.

* That brings us to the prickly issue of disclosure.

Advisers are legally obliged to disclose how they handle money and whether they have had any dishonesty convictions in the past five years. They must also disclose conflicts of interest, qualifications and experience, and whether they have any pecuniary interest which is likely to influence their recommendations. Ask your planner for this information.

* Is your planner independent?

This is a question everyone reckons you should ask, but in reality the issue is a bit of a damp squib. Instead, ask for full disclosure of the commissions paid to your would-be adviser, and ask what other perks fund managers and life offices provide. Once you know this information, make sure you are comfortable with the arrangements and be sure funds are not being sold to you for the adviser's benefit, rather than yours. Remember, advisers are there to sell product for fund managers and life offices.

* Do you use a trust account?

Never make cheques for investments payable to an adviser; you never know where the money will end up. Instead, find out whether the adviser uses a trust account and make cheques payable to this account or directly to the fund manager's trustee.

* Where do you get your research from?

Make sure your adviser is getting some sort of research on managed funds from a reputable source, such as IPAC Securities, Morningstar or Mercer Investment Consulting. While it is good for a planner to have some external research, there are a number of firms which have competent in-house research departments.

* Are you a member of an industry body?

Organisations such as the Financial Planners and Investment Advisers Association have standards and encourage professionalism, indemnity insurance, continuing education and higher qualifications, such as the internationally recognised Certified Financial Planner (CFP) and the Chartered Life Underwriter (CLU) designations.

* Finally, you need an adviser you like.

Find someone you can get on with, and who is committed to offering you a top-quality service and - most importantly - you trust.

* Philip Macalister is a freelance writer who publishes an online magazine covering the investment industry (www.goodreturns.co.nz)