Ask Paul: I'm afraid of scams, how can I find advice I can trust?

Dear Paul,

I've sold a house in Sydney and bought another cheaper one so I could be mortgage free.

I'm 63 and I'd like to invest the extra but am terrified when I keep reading about scams in the financial industry.

How can I find an adviser I trust, and how can I understand if the advice I am receiving is sound?

And what would you suggest I do in my situation? - Alexandra

Alexandra, you are not alone with this issue. Over the past 40 years or so that I have been answering readers, radio listeners or TV viewers, it would be one of the most common questions. This in itself is a bad indictment of the financial advice industry.

I know it is easy for me to say, but compared to 40 years ago, the financial advice industry has improved dramatically. I know I can steer you in the right direction more safely than I could back in the 1980s, as the advice industry evolved. Back then it was basically the Wild West. Pretty much anyone could hang out a shingle and start flogging investments. These often had entry fees of 8% and annual management fees of some 4%pa.

It was a world of selling financial products for commission, and the more horrible the product, the higher the commission. Insurance companies were among the worst with their truly appalling "regular savings" programs.

These basically took consumers' money and gave the first two years' contributions to those selling them. The boards of these companies should also hang their heads in shame. It is fair enough to blame the salespeople for selling rubbish, but the rubbish was designed by management and approved by executives and the CEO, who reports to the board.

Flogging financial products for commission  is, thankfully, in the past. Some self-serving dinosaurs still argue "free advice" is a good thing and in many industries it is a valid way to reward people.

But with finance, we are not talking about selling socks. Quality financial  advice can help set us consumers up for life; bad advice can ruin us.

Quite often the very best advice may be to pay down your mortgage or top up your very low-cost super fund. With investing, it may be to use a super-cheap exchange traded fund  or an indexed manager. No commissions are attached to these.

Yet in the past, a truly terrible investment, such as an exotic tax scheme involving pine trees, helicopters or other such things, could pay very significant commission. So a good, ethical adviser must charge us consumers a fee. How else can they recommend the very best strategy for us, while feeding their own families and paying their own mortgage?

So, Alexandra, my key tip is to use a professionally qualified, fee-charging adviser. We all love "free", but unlike Medicare, investment advice is not subsided by taxpayers. As with a good lawyer or accountant, we need to pay for professional service.

Next up is where to find these people. I still like a personal referral from trusted family and close friends. But this does not stop you from checking out the person or firm you are recommended to use. Any reputable adviser will spend time with you outlining the service they provide and the fees they charge. Get this in writing before you proceed.

Another good way to source a professional adviser near you is to go to the Financial Planning Australia "find an adviser" website. Don't hesitate to call them if you wish. I would recommend you see an adviser with a certified financial planner (CFP) qualification. This is not an easy qualification to earn. If you have a super fund, it may also have member advisers or a panel of advisers it refers members to.

We Australians tend to be polite, but this is not the time to accept what we are told. Good advice firms know how important qualifications are and I would expect their website would list their advisers' qualifications, years of experience and areas of expertise. If an adviser is described as "a lovely person, heavily involved in our community and loves animals", I am sure they are delightful. But I would much prefer to see a good undergraduate degree in commerce, economics or accounting and at least 10 years' experience. An adviser moving from firm to firm after a year or two is not a good look.

Don't be shy - as well as fees and charges, and the service provided, ask the adviser exactly what their qualifications are, their experience and time with the firm. Also ask what insurance they or the firm holds if anything does go wrong and what is their customer complaints process.

I don't want to make this seem so threatening that you never find an adviser.

Most of the poor quality ones have long since left the industry and I believe we have never had such a well-qualified group of advisers. But we are not popping in to see them for a head cold treatment or to buy socks. It is our hard-earned money, so doing your research is just commonsense. Also, the plan here is to find you an advisor for life. Your research will see you finding a good one. Don't hesitate to chat to a few advisers.

Good luck with your search. You will find a great person and the time you spend finding them will be rewarded with a firm of professional staff who can be counsel to you for your lifetime. 
I'd be very pleased if you dropped me an email letting me know how you go.

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