Keeping your money safe

Hints from older people about seeking and taking financial advice.

Financial security is important for older people.  Many depend on extra income derived from their savings and investments to supplement New Zealand Superannuation.

This income may make the difference between a comfortable standard of living and a very basic one.  People who have retired from the paid labour force are not able to recoup income and capital lost as a result of bad financial decisions, possibly made based on poor advice.  So “safety” must be an important consideration in seeking and taking financial advice.

We asked SeniorVoice members and other older people about finances and financial advisers. Here's what they told us:

Spread the risk

• Advice against “putting all your eggs in one basket” applies especially to investment.  This doesn’t only mean using several different companies, but also different types of investments – term deposits, shares, bonds, managed funds. 

• Don’t rely on only one source of advice. 

Before you take advice – find out all you can about the adviser

Financial advisers are regulated by the Financial Markets Authority and from July 2011 must be licensed.

• Are they or the company they work for on the financial service providers register – www.fspr.govt.nz
  

• What services are they licensed to provide?
  Look for an Authorised Financial Adviser or a QFE Adviser if you are seeking advice on investments and retirement.
  

• What training have they had? 

• How long have they been in the business of giving financial advice? 

• Who have they worked for?

• What professional bodies do they belong to? 

• What products are they receiving commissions for? 

• Are they representing other businesses in the financial sphere? 

• Can they give references about their record in business? 

Find out all you can about the organisation where the adviser is employed

• Is it a bank? 

• Is it a finance company? 

• Is it an “independent” firm? 

• How is it linked to other financial organisations? 

• Does the firm have a formal “rating”? If so, what does this actually mean?
  Be aware that credit rating firms may also be subject to incentives, which places some doubt on how reliable their conclusions are, even though they are influential.

• Find out all you can about the product being recommended

• What is the product and how will the money be invested?

• What level of risk is involved?  
  Remember that the higher the promised return or interest rate, the higher the risk.  The saying that “if it sounds too good to be true, it probably is” definitely applies to investment offerings.  Beating inflation and then making a bit may be the most prudent choice. 

• Does the product attract a government guarantee?  If so, how long will this last? 

• Does the product have a formal “rating”?  If so, what does this actually mean? 

• What costs and fees are involved?  How are they likely to change in the future, if at all? 

• What commission will be paid on the product and to whom?  
  There may be a fine line between providing advice and marketing a product. 

• What reports are available on the product?  
  Ask for a prospectus.  There may also be more independent assessments.  These documents are often hard to understand – don’t hesitate to ask questions 

• Will there be regular reporting on the performance of the product in future? 

• How are trust accounts managed, if applicable?

• Will the money be accessible if you need it?  Under what circumstances and what costs will be involved? 

Don’t be afraid to ask questions

• Don’t be afraid to go along to meetings with advisers with a written list of questions and take notes on the answers. 

• Insist on explanations of any terms used by the adviser, or in the documents, which you do not understand.  Some everyday terms, such as “trust” and “product”, have special meanings in this context. 

• Insist on documents being in plain language – accurate and clear, but understandable. 

• It is better to admit that you do not know, or do not understand, than to risk making a bad financial decision. 

Keep yourself informed

• Ask around about the performance and the approach taken by financial advisers.  How satisfied have other people been with their advice? 

• Make comparisons between products, firms and advisers.  For example, find out where the interest rates they are offering sit within the current range. 

• Consult their websites. 

• Keep up with financial news in newspapers, magazines and on the radio 

• Find out about the history of the firms you are interested in.  But bear in mind that past performance is no guarantee of future returns. 

Take your time – don’t let yourself be rushed

• Don’t sign up to anything immediately unless you are completely sure. 

• It is advisable to get as much information as you can about the firm, the product and the adviser and then go away to digest it, make comparisons and ask others for their opinions. 

• Seek advice from friends and family.  
  In the past people would have trusted their lawyer or bank manager.  Now lawyers’ fees are prohibitive and most people no longer have a personal relationship with their bank manager. However, you may know a professional person whom you can trust. 

• Take someone with you when you talk to advisers, if this makes you feel more confident. 

• If you are thinking about a product which may be a bit risky, ask yourself “Can I afford to lose this money?” This may clarify things. 

• Respect for “authority” should not stop you from asserting your rights as a consumer. 

Resource

> VISIT the website of the new Financial Markets Authority.

Financial advisers are regulated by the Financial Markets Authority and from July 2011 must be licensed.
Includes a searchable list of Authorised Financial Advisers.