Some people call it due diligence. Most people don’t accumulate their money easily, so why not be extra diligent before you invest it? There is never any hurry, so make haste slowly and examine the “rock” through and through.
Authorised financial advisers (AFA) under Code 1 are required to put their client’s interest first and act with integrity.
AFA’s are not to be confused with registered financial advisers (RFA) who are NOT subject to code 1. RFA’s are not required to disclose any commissions or other financial inducements. This is daft legislation but probably less-than-admirable (and powerful) influences were at work when it was introduced.
Tip no 6 - there are over 5,000 RFAs in NZ but less than 2,000 AFAs
Tip no 7 – if it is serious money you are investing, deal with an AFA.
It would be nice to think…………………
It would be nice to think that everyone in the financial services industry would be required by law to put their client’s interest first and act with integrity, but sadly no. Last week we looked at some recent headlines and snippets from around the world that were not very pretty.
Only AFA’s are required to put their client’s interest first and act with integrity, and they are very much in the minority.
The NZ banks
Love them or hate them, certainly they are the only place for short term money.
But for longer term investments, you may do better if you look for an AFA who has no ties whatsoever to any investment organisations.
Don’t despair, there are many you can trust
Here is a little list you can use to help weed out the less desirables.
How were they founded? Who founded them? Are they responsible to their shareholders first and foremost? Do you come second? It’s not too hard to spot greed if you are looking for it.
How do they operate? Do they promote active (more profitable) investments or do they also offer low cost passive funds?
Does their history have any blemishes?
Do they have a performance fee? Quite a few do but that can have two major drawbacks:
· They might take more risk with your money to seek their performance fee, which obviously is not ideal.
· Markets usually have 6 to 7 year cycles - 3 to 4 average years, 2 good years and 14 to 20 bad months. You don’t need your good years clipped by performance fees as you need them to compensate for the bad patches
Do any of their fund managers have high awards? Many look glossy but when you really compare them, how good are they?
Fees are always an issue – management fees are disclosed but what about MER’s (trading costs and other expenses)? They are not always easy to see. Ask yourself, just how many shiny suits are you paying for anyway?
Ask an independent person in the industry about them; would they deal with them? We meet a lot of fund managers in our travels and so may have some insight.
But beware, lots of advisers, and even AFA’s, may have ties to certain companies.
So only ask an adviser who has not ties at all, and who does not receive commission – and therefore has no bias.
Some fiduciaries will not buy a share or invest in a fund unless:
· It has been in business for at least 3 years
· Has an established track record, and plenty of data available on it
· Is fully invested – not consistently holding lots of cash
· Is of reasonable size and is fully liquid - traded daily
· Has no withdrawal restrictions or long waiting periods
· Obviously they don’t buy new issues or invest in new funds
28 years in the industry
I can’t publicly name who I will not deal with, since those on my “blacklist” usually have more lawyers than I can afford, but I can tell you there are quite a few.
Those that I do use have been through my “filters” and hence I sleep well at night.
Oh no - 8% guaranteed - it’s happening in the UK. Let’s hope it does not get to NZ.
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is now available.
Alan is an independent authorised financial adviser (AFA) FSP26532.
His disclosure statement is available on request and free of charge.