Questions to ask before investing

Aug 3rd '21

ASIC’s (Australian Securities & Investments Commission) Warren Day recently joined ABC Melbourne Drive host, Raf Epstein, to discuss some basic checks people should make before investing that could save some pain down the track.


‘Unfortunately, we’ve seen some recent examples of people losing significant sums of money and in some cases, their life savings, because they invested with people who were not licensed or authorised to provide financial services’, Day says.


‘This is a problem because anyone who receives unlicensed advice, or invests with people who are not licensed, do not have the same protections afforded to them under the law when they receive advice from licensed providers.


‘There are unscrupulous people out there willing to take advantage of others and deliberately flout the law. But there are a few checks people can take and few questions you can ask to minimise your chances of something going wrong,’ Day said.


Before you start

Before undertaking any investment, you need a clear idea of your investing time frame (short versus long term) and risk tolerance (low or high) and what products are aligned to that.


Diversification is also important, the old saying ‘Don’t put your eggs in one basket’ rings very true here. Diversification doesn’t mean having a house and a super fund and investments, that means diversification within your investments. It’s sensible to diversify your portfolio across different asset classes and within each asset class. This protects you against losing too much if the value of one investment falls.


Dealing with licensed investment advisers

In the last year or so, the ASIC has seen a significant escalation in complaints about unlicensed conduct, including complaints about unlicensed financial advice being provided through websites, social media, cold calling and seminars.


Anyone who gives personal financial advice and most general advice providers must have an Australian financial services (AFS) licence. A good financial adviser works with you to understand your needs, set your financial goals, and create a plan to help you achieve them. ASIC Moneysmart website contains useful information on getting financial advice and what to expect. When choosing a financial adviser, check their credentials on ASIC’s Financial Advisers Register to find out if the adviser you have chosen is currently authorised.


Being licensed is important because it controls the kinds of investments and credit products a licensee or their authorised representative can offer and whether they can operate legally in Australia. They must also meet minimum standards and have ongoing compliance requirements.


While it doesn’t guarantee against financial loss, dealing with licensed professionals provides important safeguards if things go wrong.


Doing your due diligence

In every circumstance, ASIC recommend people undertake some basic checks before investing.


  1. Always check whether your adviser is licensed or authorised through a licensee. You can do this for free on ASIC’s Financial Advisers Register.


If they don’t have one, ask why not? If they say they don’t need one, ask why not and be clear about any additional risks that may expose you to.


  1. If the return is high, ask why. Does it sound too good to be true? Realistic? Remember, there is no such thing as a guaranteed return unless it’s a bank term deposit. If it sounds too good to be true, it most probably is.
  2. Is this supposedly an exclusive offer that’s hard to get into? Be careful of scarcity and time pressure tactics, like “you’ll have to move fast to get the last units/shares”, “my book is full but I might be able to squeeze you in”. Be wary of any unsolicited calls or exclusive opportunities out of the blue.


When investing, be sure:

  • you understand what you’re investing in and the associated risks;
  • do not invest more than you are prepared to lose;
  • to diversify your investments.


If you have any doubts or concerns, contact ASIC. Every bit of information they receive is recorded and assessed and can help us alert to people who may be operating illegally.


Source: © Australian Securities & Investments Commission. Reproduced with permission.