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Getting Financial Advice in New Zealand – Who are they, what do they do, how much does it cost, and when do I need it?
The Definitive Guide to Financial Advice in Aotearoa New Zealand
The financial advice industry in Aotearoa is not widely understood. While some of us grasp certain aspects of it, are we missing out on the various available options?
Research consistently shows that those who seek financial advice make better decisions and have greater confidence in managing their finances throughout their lives. However, overall financial literacy in New Zealand remains relatively low, leaving many of us unaware of alternative choices. Our DIY attitude often leads us to handle financial matters on our own.
This guide will clearly explain the different types of financial advice you can receive, how it benefits you, how advisers are compensated, and when to seek their assistance. Ultimately, it’s up to you to decide whether you need their services.
It is important to note, with most types of financial advice, there are ways you can ‘do it yourself’, however just because you can, doesn’t always necessarily mean you should.
The different types of Financial Advice available that this guide will cover:
1. Mortgage Advice
2. Insurance Advice
3. Investment and Financial Planning Advice
Mortgage Advisers
Buying a house is one of the biggest financial commitments we will make in our lives. It’s an exciting time, but it can be stressful, and take some time, to secure a loan.
Mortgage advisers are people who work independently with the banks, to help you get a home loan, and provide advice on structures / repayments and more.
When do I need one?
If you’re planning on purchasing a home or investment property, you may benefit from using a mortgage adviser. The other option is going direct to the bank. You may also benefit from using one if you already have a loan but want advice on the structure or repayments for affordability purposes.
The upside of using an adviser is they typically work with a range of banks and can shop around to find the most suitable option for you. They also can help provide advice on how to structure the loan, and potentially help with other areas like accessing your KiwiSaver funds if it’s your first home.
Mortgage advisers also work with you on an on-going basis, so when your loans come off their fixed terms, they can help advise on what to do going forward.
How are they paid?
Typically, they’re paid a commission based on size of the loan you’re taking out (this is generally a percentage of the size of the loan). The upfront initial commission can be between 0.45% to 0.85% of the total loan amount. For example, for a $500,000 loan, the adviser could be paid between $2,250 - $4,250.
They may also receive ongoing commission of between 0.125% and 0.2% for each year your loan remains in place with the bank.
It’s important to note that advisers are ‘on the hook’ for a period of time – and if you make changes e.g. pay off a lump sum of debt, a portion of their commission may be taken back by the bank.
In some cases, the adviser may charge a fee (e.g. if helping with advice but not securing the loan). This should be disclosed and discussed up front.
Insurance Advisers
Insurance advisers specialise in helping you find the right insurance coverage tailored to your unique circumstances and budget.
The alternative is attempting to navigate this complex process on your own by purchasing insurance products directly from an online insurer. However, doing so may leave you unsure about your actual needs and the appropriate coverage amounts. Advisers not only assist you in selecting the right policies, but also review your situation as you move through different life stages. As your circumstances change, so do your insurance requirements. Most importantly, advisers support you during claim time to ensure a smooth process and that you receive all entitled benefits.
There are two types of insurance – some advisers help with both types, while others may specialise in one area
Insuring our stuff – Your home, contents, cars, boats, pets etc
Insuring ourselves - Your ability to earn income, pay for private medical expenses, provide cover if you were to pass away prematurely, or become diagnosed with something like cancer, stroke or heart attack.
Navigating the world of insurance can be daunting due to the wide range of products offered by various insurance companies, each with slightly different terms and prices. For individuals who lack expertise in this area, seeking professional advice is crucial. Additionally, advisers often have access to products not available to the general public.
When do I need one?
For insuring your stuff – You should speak to an adviser if you’re recently purchased something you need to insure (e.g. a property or car) or at renewal time you can go to an adviser to help make sure you have the right cover for your situation.
For insuring yourself – there are multiple life stages we go through which would warrant speaking to an adviser. For example – purchasing a home, having children, getting married (or divorced), starting a business, taking on debt. On the flip side, as your debt starts reducing, your children grow up and leave the nest, you start looking to retire etc, you should also speak to an adviser, as your need for insurance may be reducing and you can start to dial down your coverage.
How they’re paid
Insurance advisers are typically paid a commission based on the insurance premium you take out.
For fire & general insurance (insuring our stuff), typically the upfront commission can be between 10%-26% of the annual premium.
For personal insurance, typically the upfront commission can be between 30%-230%. For ongoing client services, insurance companies typically pay a renewal commission between 5%-30% of the premium. For example, for a premium that is $1,000 annually, the adviser could be paid between $300-$2,300.
It is important to note that with commission, the adviser is ‘on the hook’ for a period of time (e.g. 2 years), and if you make changes, such as reducing the level of cover, or cancelling the policy, a portion of commission may be taken back by the insurance company.
In some cases, the adviser may charge a fee (e.g. if helping with advice but not putting the policies in place for you). This should be disclosed and discussed up front.
Investment Advisers
These advisers specialise in assisting individuals with various financial goals, including managing their KiwiSaver accounts, investing in the share market, and creating savings and investment plans. In recent times, there has been a notable increase in people taking an active interest in investing and attempting to navigate it independently. However, using an adviser—whether for KiwiSaver guidance or selecting appropriate managed funds or retirement plans—provides several advantages:
Expertise and Research:
Advisers conduct thorough research on your behalf, identifying the most suitable investment options.
They stay informed about market trends and adjust strategies as needed.
Regular monitoring ensures you remain on track toward your financial objectives.
When do I need one?
If you have a KiwiSaver account but don’t really know what’s happening with it and want to ensure you’re maximising your nest-egg
If you want help with investing and don’t feel confident to do it yourself or want to enlist the help of an expert
If you want help setting up a proper retirement plan or if you have other savings goals you would like to achieve
How they’re paid
Some investment advisers and financial planners are paid a commission from the providers in which products they recommend. This could consist of an upfront payment from the provider, or a percentage of the balance between 0.25%-0.5%. They may also be paid an ongoing renewal fee to manage your portfolio.
Some investment advisers charge a fee for their work – this could be an hourly rate, or flat fee, and should be discussed and disclosed upfront so you have full transparency.
Financial Advisers like to form close, ongoing working relationships with their clients and will help you over the course of life’s changes. They will frequently help review the plan or product they have helped put in place to ensure its ongoing suitability.
Many people in New Zealand think getting financial advice is out of reach, because it’s too expensive, or they don’t have enough assets or money to warrant needing advice – both of these are myths.
Every New Zealander can benefit from getting financial advice to suit their various needs and it will help put you in a stronger position, with peace of mind and more confidence in making financial decisions as you go through life.