Financial Adviser Red Flags: What to look out for

Many Australians seek the guidance of a financial adviser to help them manage key investments, including their superannuation.

Unfortunately, we often see clients who have been given bad personal financial advice, which can have devastating impacts on both their retirement savings and their insurance coverage for vital policies like death and disability. We have been working in this area for years, and in our experience, there are common themes that can signal bad advice.

We’ve outlined a few of the key things to watch out for – and what you should consider a red flag.

1. You’re not being asked about your goals

Many people are underinsured without knowing it. A good question to start with is, if something should happen to you, what level of coverage do you need for your family? This could be enough to pay off your mortgage or school fees, or to have enough for a partner to stop working to care for young children for several years. It’s important to understand what the balance is between the premiums you pay, and the coverage you have.

2. You don’t understand the strategy

Your adviser normally has an obligation to provide a Statement of Advice, which should explain the strategy and why it’s in your best interests compared to other options. This should be clear and easy for you to understand.

3. Your adviser hasn’t asked about your health and medical history

It is not possible to give advice about insurance without considering your medical history and other coverage available. For insurance advice, this is crucial in determining what product is in your best interests.

A competent financial adviser should undertake a detailed pre-assessment to document their client’s existing medical conditions. They should also submit the pre-assessment to prospective insurers, to understand which provider will offer the best terms before making their recommendations.

4. Your financial adviser is recommending or “cross selling” insurance

Many financial advisers can earn commissions from selling certain types of insurance products, for several years after the policy commences – these are called trailing commissions. These commissions are often paid to advisers by a related company who manufactures the product, known as “vertical integration” and often customers aren’t aware of this relationship.

If your adviser is pushing for a product, or encouraging you to switch, it might be a sign that they have a conflicting interest.