An investment adviser helps you choose and make investments. Some advisers will offer additional services such as investing on your behalf (see DIMS below), or financial planning. The adviser must clearly explain the services they are qualified to provide.
An investment adviser works with you to:
Understand your needs and goals.
Find options to suit your situation.
Explain how each investment works, the risks and possible returns, and what it costs
If an adviser is providing investment advice and has suggested certain investment products, they should provide you with enough information in writing to enable you to make an informed decision. This could include:
information about why these are right for you. For example, do they meet your personal goals and tolerance for risk?
what returns you can expect and how likely these are to go up and down over time.
what you'll pay in fees and how to get your money out.
where your money will be held – custody arrangements.
details of the information you’ll receive about your investments.
Some advisers may only be able to offer advice on products offered (manufactured) by their employer – for instance an adviser working for a bank may only advise on investment products offered by that bank.
Am I a retail or wholesale investor?
Generally, you’ll be a retail investor unless you meet certain criteria, for example, you’re investing through a family trust or you have a large sum of money. If this is the case, you could automatically be considered a ‘wholesale investor’.
Make sure your adviser explains very clearly what a wholesale investor is and the implications for you. Wholesale investors have less protection if things go wrong. We expect advisers will only recommend you become a wholesale investor if you have significant experience in investing and investment markets. You can opt out of being a wholesale investor if you want to.
Investing through a platform or DIMS
Some advisers will recommend you manage your investment through what is known as a ‘wrap platform’. Others may offer a ‘discretionary investment management service’, known as a DIMS.
Wrap platforms are online services that can be used directly by you or by your adviser.
Your investment information is held in one place and you usually receive consolidated reporting, making it easier for you to track the performance of your investments. You may also have access to some funds not available individually.
It’s important to note – that if you’re only investing in one or two funds, it can be more expensive to use a platform. You should also check it isn’t only available to clients of a particular advice firm. If it is and you change advisers, you may have to leave the platform and pay fees and taxes.
With a DIMS, your adviser handles the day-to-day management of your investments on your behalf. Your adviser needs to be acting under a licence or have the authorisation to provide a DIMS. Your adviser will take you through the relevant paperwork needed to sign up to a DIMS.
Before you sign anything ask:
Will my investments be held in my name or someone else’s?
Who will hold my investments and ensure they are where they should be?
What information will I receive about my investments and how often?
What are the charges for this service?
Keep a close eye on your money
Letting someone else make investment decisions for you doesn’t mean losing control. Most advisers behave professionally and are legally obliged to do the best for their clients, but it’s still important to keep informed about your investments.
Your adviser should have a written plan for you.
Help protect yourself by asking as many questions as you like - until you’re confident you understand what you’re investing in.
Protect yourself by:
never writing a cheque payable to your adviser, unless you’re paying their advice fee
never signing a blank document given to you by an adviser, or a blank cheque
keeping all your correspondence, statements, and reports in one place – track your money and always check for anything unexpected
making sure any statements and reports about your investments are sent to you and not just to your financial adviser
finding out how you can cash in your investments. Check if conditions apply to withdraw money, such as reaching a certain age (for all KiwiSaver schemes) or waiting a set period of time (for some managed funds).
How investment advisers are paid
The amount you pay for investment advice will depend on how complex your needs are. To give you an idea, you could initially pay anything from $250 for some simple advice, up to $4,000 for a comprehensive financial plan. You may pay more or less than this depending on the adviser you use and there will be other ongoing costs to consider.
Your adviser may be paid in several different ways
a one-off fee to prepare a plan – sometimes referred to as an initial plan fee
an establishment fee to set up your investments
an hourly rate for services performed by your adviser, such as preparing a financial plan, implementing the advice and ongoing reporting
an ongoing fee, management fee or service fee for providing an ongoing service
a commission or other incentive reward from the investment product provider.
In addition, you may also be charged other fees, including
a platform fee – if you or your adviser decide to use a fund platform to manage your investments.
a custodian fee – if your adviser uses a third party to hold your investments
a fee to a product provider – for the administration costs involved in providing an investment product.
Also, ask if there are any cancellation fees and in what circumstances any of the above fees would be refunded.
TIP: If your adviser quotes their fees in percentages, ask them to convert it to dollars to get a better feel for what you’re paying.