Choosing the wrong financial adviser can have dire consequences. Just ask all those people who lost money to sharks or through poor financial advice over the past five years.
Part of the problem in New Zealand is that until recently, almost anyone could print a business card and start offering financial advice.
That has all changed. The Financial Advisers Act 2008 (FAA), which comes fully into effect on July 1, means financial advisers, mortgage and insurance brokers and other financial entities such as banks must meet certain standards.
These standards include taking an appropriate degree of care, refraining from misleading and deceptive conduct, being registered on the Financial Service Providers Register (which can be searched) and joining a dispute resolution scheme that can make independent recommendations.
The FAA came into being following a number of financial abuses of the past decade, some of which - such as misuse of investors' funds - received a lot of publicity.
From July 1, financial advisers offering investment advice need to have the letters AFA (Authorised Financial Adviser) after their name, which means they meet basic educational and knowledge requirements.
But Nigel Tate, president of the Institute of Financial Advisers, points out that being an AFA isn't enough.
A patient wouldn't want an intern performing brain surgery. They'd expect an expert. In the financial advice world, that means going a whole lot further by undertaking a diploma to become a Certified Financial Planner (CFP practitioner) or qualifying as a Chartered Life Underwriter (CLU).
Financial advisers should also belong to an industry organisation such as the institute, or SIFA. Institute members are required to undertake continuing education and can be censured if they misbehave.
Letters at the bottom of an adviser's business card won't necessarily ensure that consumers get the very best financial advice. They do, however, signify that the adviser has been through some sort of educational process and that they need to adhere to a code of professional conduct under the FAA.
Since I last wrote about choosing a financial adviser, there have been other changes for the good. The institute has adopted more stringent educational requirements for its members, and an international standard called the 4Es: experience, ethics, education and examination.
The new regulation is a good start, but doesn't have all the teeth it should have. The original FAA draft was a catch-all and would have covered a much wider range of people who give "financial advice".
The lawmakers decided that mortgage and insurance brokers simply need to be "registered" as RFAs, not authorised, because they sell simpler products than financial advisers.
There are other degrees of authorisation. Bank tellers and client services staff, for example, can give advice under the FAA about their employer's products. The bank or other financial entity has to become authorised as a Qualifying Financial Entity (QFE) and its staff work under the company umbrella.
The bank or financial institution takes responsibility under the law for its staff's actions.
There is a greater risk of such staff making mistakes than a financial adviser, who is trained and authorised in his or her own right. But the employer sits at the bottom of the cliff to catch any mistakes.
A classic example of this, although it was before the current legislation, was where ANZ staff advised clients to invest in two funds run by ING, which were subsequently suspended during the global financial crisis. ANZ owned half of ING New Zealand and the investors argued that the bank's advisers weren't acting independently and in customers' interest.
The bank was aware of the public relations damage done by the fiasco. Had the investors been sold the funds by XYZ financial adviser, not an ANZ bank adviser, their plight wouldn't have made the headlines.
Thanks to some pretty determined lobbying, lawyers, accountants and real estate agents escaped being regulated. They have relief from the FAA if working in the normal course of their role.
Does that mean, Tate asks, a lawyer processing the sale of a farm could recommend to the farmer that he invest the proceeds of the sale in an equity partnership or other investment being promoted by the law firm?
How much financial advice these professions can give will ultimately be determined by the courts.
A good financial adviser should help you make better financial decisions. Make the wrong choice of adviser, however, and you can lose everything you own.
That wrong move, points out Tate, can be switching critical illness insurance policies at the behest of an adviser, to find when you really need it, the policy doesn't pay out. Instead of getting a lump sum to cover medical or living expenses, the family is left living on a benefit.
Even worse are the people and businesses on the fringe of the investing world who masquerade as financial advisers, but aren't. Companies selling property, for example, escaped authorisation under the FAA.
Read their websites and you'll see they offer "financial blueprints", "financial health checks", "investment plans" and "strategies". Unlike financial advisers, however, they aren't authorised or regulated.
Even if you manage to swim clear of the sharks, you can't simply pick a financial adviser and leave every last detail in their hands. It's essential to actually read the material you receive and consider carefully the returns on your investments.
Clients also need to ask financial advisers how they're paid before choosing to use their services. Some earn commission, others charge by the hour. The latter may prove to be cheaper than the former, although both would argue they will make you more money than they charge you.
It's also worth knowing what job your financial adviser will do for you. Does your adviser make the investment decisions him or herself, or do they use third-party companies' expertise and simply put you into a standard portfolio according to your risk profile.
Your adviser shouldn't automatically be against property investment or other types of investment. If your adviser is against an individual investment, but not the class of investment, then he or she is probably doing you a very good job. The warning bells are ringing for your adviser about that investment.
From a risk-management point of view, the safest adviser to have would be a CFP practitioner, who is a member of the IFA, SIFA, or a similar body, and also a bank employee. That way you get the legal protection, the education that comes with being a CFP, the code of ethics and the bank ambulance at the bottom of the cliff if everything goes wrong.
There are always swings and roundabouts. The specific bank employee, although a CFP practitioner, might be limited by bank rules in the products he or she can advise on.
Depending on your financial situation, you may be better off with a larger financial planning firm that has either good relationships with lawyers, accountants and trust experts - or in fact has this expertise in-house. Such a firm, because of its size, will also offer continuity should your adviser move on for whatever reason.
This isn't a perfect world and, if all goes wrong, there are avenues for complaint, although they don't always result in a refund, which is what really matters. In the first instance you can complain to the company itself, which should have a complaints procedure.
If that's not satisfactory, it's possible to complain to the disputes resolution service, which an authorised financial adviser must belong to. The best-known is the Insurance and Savings Ombudsman.
Failing that, the Financial Markets Authority can hear complaints about the behaviour of a financial adviser, and the Commerce Commission deals with deceptive conduct or unfair trading practices.