Ever wondered what it is a professional financial advisor actually does? Those slick guys calling themselves Registered Financial Advisers (RFA’s) and Authorised Financial Advisers (AFA’s)?
Most people tend to perceive them as pretty much exclusively catering to old rich people (no good if you’re young or your net worth is low) or as predatory sharks just trying to sell you financial products you don’t even need.

To be honest, my general impression of them was the latter – but this was probably from reading one too many American finance books.
To get to the bottom of what they’re all about, I had a chat to Sonnie – a Christchurch based AFA and one of my awesome subscribers!
He helped me get to grips a lot more with what it is they actually do, as well as how to select the right one for you if you’re in the market for some profesh advice.

This is not a paid endorsement or professional recommendation; as always my advice is to get the real facts, then make up your mind if it’s right for you!

Edited for clarity and length

Hi Sonnie, thanks for agreeing to answer a few questions. First things first: What actual services does a financial adviser (a.k.a. Financial planner) provide?

For the purpose of my responses, I am going to talk about financial advisers who provide investment advice and insurance advice.
Mortgage brokers sometimes refer to themselves as financial advisers (they have to be RFAs, which I discuss later), but I won’t cover them here.

In simple terms, financial advisers give recommendations or opinions in relation to financial products (eg investments and insurance products) and prepare financial plans to help people achieve their financial goals and manage their financial risks.

Generally speaking, financial advisers also help to implement the advice they give. For example, if they recommend one or more insurance policies, they will help you apply for insurance. Or if they recommend certain type of investments, they will generally help to invest in line with those recommendations. They will usually then be responsible for making changes to your insurance policies and investment portfolio – based on your instructions, of course.

How can I tell the difference between all the different types of financial advisers?

A way to do this is by looking at the different labels for people who hold themselves out to be a “financial adviser” – AFAs (authorised financial advisers) and RFAs (registered financial advisers). Generally speaking, you need to be an AFA to provide advice in relation to investment products and prepare an investment plan for someone. AFAs need to satisfy educational requirements and are subject to a code of conduct which, amongst other things, requires them to put the interests of clients first.

It’s a lot easier to become an RFA – your criminal history must be satisfactory, and you need to be a member of a dispute resolution scheme. (Think of it this way: RFAs and AFAs need to register as a financial adviser, but an AFA also needs to be authorised to provide certain types of advice. This is likely to change at some point in the next few years.)

(There are also “QFE advisers”, which are technically advisers but are basically agents of financial product issuers, so I haven’t covered them at all.)

A final way to distinguish between advisers is whether they have any special designations. All else being equal, it is good to use a Certified Financial Planner (CFP). This is an industry designation. CFPs have greater ongoing professional development obligations, and the more recent CFPs have had to demonstrate their competencies to a higher standard than the standard required to be authorised as an adviser. (Earlier CFPs have generally been grandfathered, although they have had to maintain their professional development.)

It’s worth working out what type of advice you’re after and ensuring the adviser in question provides that type of advice.

So what’s the actual difference between an RFA and an AFA?

RFAs can’t provide personalised advice in relation to investments. Generally, they will only provide insurance advice (or mortgage broking services). They might provide “general” advice in relation to investments like KiwiSaver, but technically they shouldn’t be tailoring their advice to your circumstances.

RFAs are still subject to standard consumer protection law, so if they are providing a service it needs to be fit for purpose and they can’t engage in misleading or deceptive conduct.

AFAs are subject to a Code of Professional Conduct, which applies in addition to these general obligations. The first code standard is that AFAs “must place the interests of the client first, and must act with integrity”. It states that these obligations are paramount.

Most insurance advisers are RFAs only, so technically are not subject to the same high standard. However, for many of them, insurance is all they do so there is no reason for them to become an AFA. So ultimately, the genuine insurance specialists are more likely to be RFAs, which means that in practical terms you may well end up with the best advice from a specialist RFA.

How do advisors get paid?

Almost every insurance adviser receives a commission. Some of these advisers may be salary-only, but the organisations they work for receive commission, so there are still pressures on them to write insurance.

Most investment adviser are fee-based, which means they receive fees directly from clients rather than commission from product issuers. The majority of their income is usually calculated as a percentage of your funds under advice.
This is commonly around 1%, with this figure reducing on a sliding scale (eg 1% on the first $500,000, 0.8% on the next $500,000, etc). So if you have $300,000 to invest, they will generally charge $3,000 per annum; if you have $500,000, they’ll charge $5,000 etc.
Some will also charge an advice fee and an implementation fee for getting your money onto the recommended platform and underlying investments.

Some investment advisers still receive commission. This is especially the case with KiwiSaver (many receive 0.2-0.5% commission per annum from certain providers).

The FMA has an article on their website about Paying for advice.

As always, it’s important to be aware of what you are being charged.

Do any advisers take on young people or people with a small amount of net worth? It seems like financial advice is just for rich older people with too many investments to manage

Some do, but many don’t. This largely goes back to investment advisers charging as a percentage of funds under advice, which creates an incentive to advise clients with a large amount to invest.

“Come back to me when you have $1m in the bank”

Insurance advisers, on the other hand (generally the RFA’s) are definitely happy to work with young people, especially young parents or parents-to-be, because they often are in most need of insurance.

Say I’m confident making my own investing and financial decisions. What could an adviser do for me?

I’ll break this answer up in relation to investment advice and insurance advice.

There are many people who can probably take care of their investments without the help of an investment adviser. This is likely to be the case for many people who are engaged enough to subscribe to mailing lists like yours.

However, even switched-on and motivated people can benefit from an adviser, even if it’s to get a “health check” to make sure they’re on the right track (which can give them confidence/peace of mind), or to get some external accountability (in much the same way that fit and motivated people use a personal trainer).

I’ve also found that some people almost find it cathartic to be able to discuss this sensitive area with a professional – because money is sometimes very hard to talk candidly about, even with close friends and family members.

Regarding insurance – I think using an insurance adviser (who isn’t tied to any insurance company) for arranging life/disability/health/income protection is something almost everyone who needs insurance should do. It can be pretty overwhelming if you’ve never sorted out insurance before.

I personally use an insurance product adviser to recommend the most suitable products and product features for me. You’re generally going to get the same premiums that you’d get by going directly with an insurer or using LifeDirect. Despite this, there are lots of really technical differences between the policies, and lots of things you can’t know just by reading the policy documents. For example, if you have a pre-existing health issue when you apply for insurance, which insurer will provide the best underwriting criteria? And if you need to make a claim, which insurers are most likely to come to the party and cooperate?

If you have an adviser, they will also help at claim time – and having an adviser who has a big book of business behind them is going to have a lot more leverage with the insurer in terms of getting a marginal claim across the line than if you dealt with the insurer directly.

How do I go about choosing an insurance adviser?

The Financial Markets Authority (FMA) which regulates financial advice has some good resources about Choosing an adviser.

In my experience, there is high variability between the quality of insurance advisers. Most insurance advisers are very personable, so don’t just rely on whether you like them or feel like you can trust them.

Here are some good tips that I use for figuring out whether an insurance adviser is worth using:

  • Ask them about the last time they recommended that a client reduce their level of cover. If an answer doesn’t easily come to mind, that’s a red flag. For most people, their insurance needs should reduce over time, and if they are reviewing their clients’ circumstances periodically, they should regularly be telling their clients this.
  • The degree to which they specialise in this area. The truth is, insurance can get pretty complicated. There are “comparator tools” available that make it seem easy to compare policies (think LifeDirect but slightly more detailed and tailored to advisers). But the differences between policies can be pretty nuanced and what is a good policy for one person may not be a good policy for another person. Underwriting issues are also relevant – if you have a pre-existing illness, it’s possible that one insurer will be more open to providing cover on favourable terms than another. If your adviser isn’t doing this regularly, their advice is likely to be more superficial.
  • This might be a little controversial, but if they do insurance as a side-gig to mortgage broking, this is generally a red flag for me.
  • If you’ve received advice already, here are two easy things to judge the advice against:
    • If they have provided recommendations for you and your partner, have they recommended the same level of cover for both of you? In most instances, this shouldn’t be the case. For example, if my wife earns more than me, it makes sense for her life insurance policy to be higher than mine.
    • If they have recommended the same level of cover for life insurance and disability insurance. It’s not uncommon to recommend the same level of cover, but realistically, they are both different insurances, covering different types of risks, so you should expect to see different levels of cover.


How about choosing someone for investment advice? What are some ways I can figure out if I’ll be getting unbiased advice?

One good place to start is to check out Mary Holm’s website. She gives some good tests. For example:

A good adviser – who is putting your interests first – should always ask every client at the start if they have debt. If yes, and the interest is higher than mortgage rates, the adviser should recommend repaying that before doing any investing.”

She also has a good list of financial advisers who charge fees, which I would recommend as a starting point.

It is worth meeting with some advisers to see if you feel like there’s a personal fit. In order for an adviser to provide appropriate advice to you, they need to get to know you quite well, and you need to be candid and share a lot of information that you sometimes don’t even tell friends and family members. So you need to feel like you can share this information with them and that you’re on the same wavelength.

  • A big thing I would look for is someone who focuses on you. Quite a few advisers are keen to talk about their investment philosophy and will dive into talking about “fixed interest” and “compliance processes” and “DIMS/discretionary investment management services”. This is all well and good, but they can’t prepare a plan for you if don’t know about you. Your plan should revolve around your circumstances, needs, and objectives. You’re not paying them for a lecture on financial jargon.
  • Make sure you understand how they are remunerated.
  • Find out if they are affiliated with financial product issuers, because this might create incentives for advice to cross the line towards sales.
  • If they are associated with a brokerage service provider, ask them whether this creates incentives for them to trade investments more than necessary.
  • My personal prejudice is also to ask whether they think they can outperform the market. If they think they can, to me this is a red flag. Usually, the best a financial adviser can do is help to ensure you’re invested in a way that is suitable to you, and make sure you don’t get beaten by the market.

With regards to yourself, what’s your background? What do you do differently from regular financial/insurance advisors?

I initially started working with financial advisers as a financial services lawyer in Australia. Over the years I’ve had the privilege of working with hundreds of financial advisers. I’m passionate about financial advice because I’ve seen first-hand the positive effect good quality advice can have on people.

I’ve taken the lessons from the best and have applied them to my business, Fairhaven Wealth. (I also write a blog, and have a fledgeling podcast). My aim is to create an advice business that is independent and clean as possible in terms of aligning my interests with the interests of my clients. The advice I give to clients is the same as what I would give to my friends and family members.

I help clients (in Christchurch and throughout New Zealand) on an ongoing basis, as well as on a one-off, as-needed basis. I usually charge fixed fees, agreed upfront with clients. My service is also advice-only, meaning I leave it to my clients to follow my advice (or not!). Because I’m advice-only, my fees are lower than most other advisers.

Thanks for your insight – the world of professional financial advice can be pretty murky, it’s always good to have some clarification for anyone who’s been wondering about it.

As a final comment, I want to thank you, Ryan, for creating such a useful set of resources for engaged young people. I’ve referred a number of people to your website and mailing list and will continue to do so.

If you’d like to get in touch with Sonnie, you can do so through the above links to his site.



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