Your financial adviser has just provided you with a long, detailed document called a Statement of Advice (SOA). It sets out one or more financial products that your financial adviser is recommending you purchase.
Your adviser sat you down and took you through the SOA and his/her recommendations. You know that you should never sign the authority to proceed on the spot. You know you need to take the SOA home and read it in your own time before you sign anything. But before you thank your adviser for their time there are 5 questions you should ask that could help you determine whether the financial products recommended by your adviser are the right ones for you.
1. Would your advice be different if… I lost my job/moved interstate/became pregnant/got married/sold my home/retired?
Your financial adviser is not a mind reader. It is important that you inform your adviser not just about changes that have happened in your life, but also changes that may happen. You adviser may explain that their advice could be different if that change occurred for you, in which case you may wish to consider waiting to act on the advice, or the alternative advice if you think the change is likely (or has already occurred).
2. How accessible will my assets be?
Some investments can tie your funds up for a period of time, making it impossible or costly to gain access to those funds in the event of emergency. This can also mean that if the investment has a poor return you will have to wait before you can change to a different investment.
3. When did you last read the product disclosure statement?
Your financial adviser must give you a copy of a product disclosure statement (PDS) for each of the financial products they recommend to you. They'll tell you to read them, and you should. Equally important is that your financial adviser has read the PDS and is recommending the particular financial product based on their understanding of the most up-to-date version of the PDS. It is likely that you will have questions when you read through the PDS and it is important that you can ask your financial adviser about this and be confident they understand the product inside out.
4. Do you recommend this financial product to all your clients?
If the answer to this question is yes, that is a red flag. It could mean that your adviser strongly believes in the merits of the particular financial product and only has clients with the exact same financial goals and attitudes to risk as you, but it is also possible (and more likely) that there is some incentive provided to your financial adviser for recommending that particular financial product.
5. Who would you not recommend this financial product to?
Your financial adviser is recommending a financial product because they consider it is suitable for you. Equally telling, however, is who they consider the product is not suitable for. If, for example, your adviser says they would be unlikely to recommend the product to someone who is worried about losing any portion of their capital invested, and you are worried about losing any portion of your capital invested it is time for a longer conversation.