Planners and accountants help people manage their financial affairs but have quite distinct roles.
What's the difference between an adviser and an accountant? It's all about achieving life goals, writes Christine Long.
In the past, people may have thought about consulting a financial planner only if they had a lump sum, but these days many planners help people build their wealth.
The chief executive of the Financial Planning Association (FPA), Ken Breakspear, says financial advisers are trained to take a more holistic approach to your finances than accountants.
Rather than doing your tax return or offering small business advice, planners will discuss your life goals and produce a financial plan to help you achieve them.
This will generally involve investing in a portfolio of managed funds. But planners may also look at estate planning and ways to protect your assets.
Although tax issues may be part of this process, planners do not offer the sophisticated tax planning undertaken by a specialist, Breakspear says.
The role of financial planners is even more clear cut under the new Financial Services Reform Act introduced on March 11.
Under Corporations Law, accountants were exempt from licensing rules if they provided investment advice to clients incidental to their main business activities.
Now, however, accountants offering specific advice on superannuation, shares, investments, risk or life insurance will either have to hold their own licence or come under the authority of a licence-holder, says Ian Johnston, the executive director financial services regulation at the Australian Securities and Investments Commission.
Accountants and financial planners may also differ in the way they service their clients.
Often planning firms will send their clients quarterly reports as well as meeting them twice a year to discuss their goals and review their portfolio.
"There is probably more contact than just around tax time," says Breakspear.
In spite of this, many people still feel more comfortable turning to an accountant when they want help with their finances.
Kathy Bowler, the financial planning manager at CPA Australia, says: "There's still a lot of mistrust of financial planners, partly because of where the industry started."
Many financial planners had their roots in the insurance industry selling products with high upfront commissions.
That has made it difficult for them to shed their image as product floggers, particularly in cases where they have clung to remuneration structures which rely on commissions paid by fund managers.
By contrast, accountants generally charge clients an hourly fee for their advice.
In addition, it is only relatively recently that there have been distinct formal qualifications for financial planners. Of the 14,000 practitioner members of the FPA, 4,000 have attained the industry's highest qualification as a certified financial planner.
That means completing eight units in the diploma of financial planning course and having at least three years' experience as a proper authority holder.
Another 2,000 have achieved the FPA's associate membership status after completing the diploma of financial planning and two years' experience as a proper authority holder, and a further 6,000 are in the process of studying for their diploma.
Because of these factors, a growing number of accountants are seeing an opportunity to extend their skills into the financial planning arena.
Financial groups Count and Lonsdale are among the firms which have large numbers of accountants acting as their authorised representatives.
And a recent survey by CPA Australia, found that 5,000 out of its 75,000 members wanted to be able to offer financial planning advice to their clients.
In order to support them, CPA Australia recently announced plans to seek an Australian financial services licence so that it can authorise its members to provide financial advice.
In the meantime, unless they are properly licensed, an accountant will refer clients either to an external financial planner, or in the case of a multi-disciplinary practice such as HLB Mann Judd, to a partner authorised to provide financial advice.
The advice is right
We need different levels of advice at different stages of life. A younger person would no doubt benefit from professional advice but he or she might find it tough to justify the cost. Someone approaching retirement with a superannuation lump sum, however,would be crazy not to consult a planner before they retire. If you are between the two extremes whether raising a young family or a high-flying, high-income-earner you could benefit from a little advice along the way, if only to confirm you are on the right track.
Starting out
Regrettably, people see the value in advice only when they are older and it becomes more critical, says Sally Manion from the financial planning firm IPAC Securities. "What's really at the core of it is what you might miss out on if you don't get financial advice," Manion says.
She believes people find they can do their own research and are happy to take risks "until it gets to a particular amount". With smaller amounts, they feel very capable. It is when it begins to get to a certain size that they decide they had better check with an expert. "[Advice] provides peace of mind that they are on the right track."
Laura Menschik, managing director of Millennium Financial Services, says in the early stages, getting on track can be as simple as acquiring as much information as you can:
"It may be reading magazines, newspapers and books, attending money shows and watching money programs on television." But at this point, the advice needed is pretty basic.
Growing family
Things become more complex. Manion says: "When you are a young adult and have no responsibilities you are more inclined to take risks with your money and therefore back yourself." But as you gain more responsibilities, and as money becomes more material, it is a different matter: "Money is a very emotional thing."
Menschik says as people's finances get more complex, they need more advice. By way of example, she say: "You have no idea how many people come to see us and are underinsured." They may have the $100,000 life insurance they took out in their 20s, but now they've a mortgage and family, it is woefully inadequate. "When you are married with kids you may need advice on the mortgage, advice on your levels of debt and advice on what is the best structure to hold your assets. You also need advice on insurance and advice on estate planning."
High income earner
The issue of blended families and second marriages often hits when people are in their 40s and in a high-income-earning phase of life. They may have been through a divorce or are remarried and have kids with a second spouse.
Blended families make financial planning even more complicated, Menschik says. Even if that hasn't been an issue, in the wealth accumulation phase of the mid-40s you need to plan on the best way to build up your assets, she says. Do you need a family trust, do you invest more into super, is your estate plan up to date and should you be restructuring your debt?
There are several aspects to advice, Manion says. There is the straight strategy of value adding then the coaching and discipline that receiving advice can instil. "It is easy to drift off-course with investments," she says.
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