Every investor wants the best outcome for their portfolio. Photo / NZME
We've said it many times before; seeking advice from professionals is a great first step in your financial journey. But how do you know that the professionals are using best industry practice when managing your money?
We are frequently asked by investors and trustees – do financial advisers get audited?
As an investor, you want peace of mind. You need to know that not only is your adviser competent, but also that they're acting in your best interest regardless of how much money you'll invest, or what your personal circumstances are. How can you do that?
The answer is (surprisingly) simple: Look for CEFEX.
CEFEX certified firms adhere to a standard representing the best practices in their industry. This means that the highest fiduciary standards will be followed throughout every step of the investment process. In short, it means they have a responsibility to act in your best interest if you're an investor with their firm.
The nitty gritty
Risk is a major variable that plays a part in your investment portfolio. Many of us do get overwhelmed and need the right shoulder to lean on. The accompanying concern is understandable - money doesn't grow on trees, and knowing that you can lose your hard-earned dollars if you invest with the wrong firm is not something anyone would take lightly.
This can be especially difficult for those in positions of governance such as trustees, where accountability for decision making is a heavy burden.
The CEFEX audit process ticks a lot of due diligence heavy lifting. Think of it as akin to buying a car with the AA pre-purchase vehicle inspection.
MyFiduciary's Saia Havili puts it thusly: "Most individual investors don't have the time or expertise to perform detailed due diligence on investment advisers and certainly not on an annual basis."
This is where CEFEX certified companies come in handy. If you think about it, investing with a CEFEX certified company can be a kind of risk management. CEFEX accredited firms voluntarily undergo annual audits by independent analysts to help foster a culture of continuous improvement.
This annual assessment involves identifying Opportunities for Improvement (OFI) within the investment advisory firm. These OFIs are specifically related to best practice standards, and the firm is expected to take action within 12 months of OFI issuance.
How does this all affect investors?
CEFEX certification is the nearest thing we have to a global stamp of approval for trustworthy investment professionals.
We've already mentioned risk management, but there can be extra 'goodness' that lays beneath the concept of being CEFEX certified. Think of it like a positive domino effect.
Picture it: You're the centre of attention, at the heart of everything the firm does. The firm is more likely to generate investment portfolios that meet your needs and expectations, while working to the highest professional standards.
This benefits you because it ensures a higher probability of enhanced portfolio outcomes, increased transparency, increased oversight, competitive influence, and better manages your expectations through education. And because the firm voluntarily agrees to a rigorous annual audit, you can rest assured that your adviser continues to work to the highest professional standards.
In CEFEX we trust
Given that people transfer their assets into trusts to be looked after and nurtured by the trustees for the benefit of the beneficiaries, there are many responsibilities for the trustees.
If trustees are investment fiduciaries adhering to the highest standards, it's a good foundation for the faith that must inherently be placed in them. It's important to note that this doesn't look at the investment performance, but whether the trustees acted prudently and professionally.
Think of it like this – the weather at sea depends on things beyond our control, but when a storm rolls in, it's always better to have a qualified captain at the helm who's doing everything to the book.
Is it easy for companies to become CEFEX certified?
The short answer - no. It's more of a rigorous process than you might think. CEFEX certified firms adhere to a standard representing the best global fiduciary practices in their industry. The standards include specific criteria which have been substantiated by regulation or written in consultation with leading firms.
To date, just over 100 firms across the globe have achieved this certification. There are only eight CEFEX certified firms in New Zealand.
The bottom line
It boils down to one thing: Every investor wants the best outcome for their portfolio. An important aspect of success is selecting a firm with a client-based approach. If you're considering getting your financial house in order, a CEFEX certification can offer a way to prove an advisory firm's approach is robust and trustworthy. External validation is a great first step.
•Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
•The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz