Choosing a Financial Adviser
Many people are unsure how to find trusted Financial Advisers. Often, they ask a friend for a referral or are contacted by an adviser out of the blue. These are poor matches because a successful client-adviser relationship is measured by results and experience. Being closely related or acquainted to the adviser will not increase the success!
The search process starts with determining your needs and goals. Your goal might be to plan for retirement, insure your life or income to protect your family, or investment management for your portfolio.
Some variables include your account size, qualifications you desire in your Financial Adviser, specific gender, race, language or religion? What are your initial thoughts about the sort of services you require? Do you have any preferred fee structure? Do you prefer a certain style?
For those beginning their search for an adviser, a little due diligence is required. Selecting the right adviser at the outset can save a lot of effort, pain and money in the future. Here are some questions to ask during the first meeting. There are no right answers, but how the adviser resolve your concerns will help you come to your decision.
Remember: If an adviser is cagey about giving straightforward answers to any of these questions, you should take your business elsewhere.
By actively vetting your adviser, “you’re signaling to the adviser that you’re an informed investor,” says Steve Horan, head of private wealth at CFA Institute. “If they adviser doesn’t want an informed investor, then you don’t want the adviser.”
1. What licences do your company and you hold? What services do you offer?
Find out what services are offered and if they match your needs.
There are different forms of licences granted by MAS. Refer here for details.
2. Are you independent?
There are two kinds of financial adviser – tied or independent. A tied financial adviser, usually from a bank or insurance company, can only advise on products their own company carries whilst an independent financial adviser act on behalf of the client, and will be able to access products from numerous companies and advise on assets not placed within their company.
It is unlikely for any single company’s product to be the most competitive in all areas of financial planning. If you are engaging a Financial Adviser who is single company tied make sure you source out with others. The ability to select from numerous available products/companies is a minimum starting point for good financial advice!
3. What is your employment history and experience level?
If your goal is to get professional help with your investments, work with someone who knows what they’re doing. Experience isn’t everything, and the expertise and strong support of the firm may be just as important. If the Financial Adviser is new to the retail financial services market, you may have more confidence in an adviser who can satisfactorily answer questions.
Ask for previous work experience. Be wary of an adviser who jumps firms frequently, especially if his or her explanations are vague. They should be able to give clear reasons for past departures. Ask if they have a clean record. The objective is to build rapport and understanding of the adviser. You should feel comfortable with the knowledge and experience level of your Financial Adviser.
4. What is the cost and how are you paid?
Know how the Financial Adviser’s receives his remuneration. The standard ways of remuneration are: A) Fees – fees are paid by the client for analysis and planning B) Commissions – payments are based on individual products sold to you. C) Salary – the adviser is paid from commissions you pay the company.
Most advisers take commissions on the purchase or sale of financial products, such as stocks or insurance. Some charge fees for advice and portfolio management. Still some platforms allow the advisers to charge a percentage of clients’ total assets under management. You may want to choose how you’d like to pay if the firm has more than one way to charge their clients.
Ask the adviser how his remuneration will affect his advise to you and other conflicts of interests. Ensure complete impartiality of advice you receive by having a logical answer. In most cases, Financial Advisers remuneration is a cost to you, so take note.
5. What certifications do you have?
The basic minimum qualification requirement for a Financial Adviser, an agent of an insurance company or employee of a bank is CMFAS examination. The CMFAS examination consists of a few modules of multiple-choice exams. These sets of exams are a minimum standard and do not reflect any particular expertise or knowledge.
For affluent individuals in need of quality advice, you will want seek an adviser who holds more advanced qualifications Many advisers have an alphabet soup of certifications on their business cards. You can find information about certifications here.
Ask if the Financial Adviser has an area that he specializes in. Very few Financial Advisers have expert knowledge in all areas of financial planning. Ensure that the adviser has the support of specialists within the firm when required.
For a high net-worth individual, there might be issues that require the expertise of different professions. A good Financial Adviser should be comfortable working with other professionals and have the capability to do so. If you already have an accountant or lawyer, ask the adviser if he or she is willing to collaborate with professionals, and whether he or she has done so before. Additionally, find out how the adviser charges for doing so.
7. What level of ongoing service do you offer to my investments and me? How often will I hear from you?
Investors need varying levels of guidance depending on their needs. Someone with a single portfolio might only need a review to the asset allocation once or twice a year, whereas someone with complex assets and estate-planning issues might need more time. Ask the Financial Adviser if he is accessible via e-mail and phone, as well as how many times a year he plans to meet. Most advisers meet with clients on a annual basis, with periodic checkups via e-mail.
If the adviser is going to be receiving ongoing remuneration for the servicing of your policies, you should expect to receive some service in return. Your communication expectations should be set during early stages of your discussions and both parties should feel that they are reasonable. A good quality review carried out once a year almost always makes sense.
You should also have an understanding of whether or not you trust your Financial Adviser to alter your portfolio without speaking to you first.
8. What happens to my account if you leave the firm?
Have an exit strategy in place if adviser decides to leave the firm. Will you transfer with the Financial Adviser or would you stick with the firm and work with a different adviser? Are there any fees related to a transfer? How much time would it take to pull assets out? Who would you call?
People are concerned about the stability of financial institutions. Regardless of what happens, you want to know how to access your money.
9. What investments do you most commonly recommend to clients?
This is to find out about the type and style of the Financial Adviser. There are some Financial Advisers preferring complex policies. These might be hiding charges. Your Financial Adviser should be able to clearly explain his process for making recommendations.
Don’t invest in anything that you don’t understand or that your adviser cannot satisfactorily explain to you. For example, non-high net-worth clients should probably steer clear of hedge funds. Complex instruments like credit-default swaps are seldom suitable for individual investors, unless there are complex structures already involved, like overseas property and loans.
Some additional questions that may also help in the search process are included below.
What is your client base like?
A Financial Adviser’s clients may reveal the advisers’ style. “One size may not fit all” Some financial advisers cater to the financial needs of certain professions, etc. There are others familiar with different age groups.
If you’re a small-business owner, an adviser who works with mainly corporate employees will probably get the job done, but may not be the best possible fit.
If a prospective adviser gives you details about other clients’ names and financial information, you can assume that your information will be treated the same way.
Have any clients left you or your firm? Why?
There’s no way to verify an adviser’s answer to this, but the question can reveal a lot. Sometimes clients leave for valid reasons (for example, someone may move, or go with their spouse’s adviser). Again, you’re looking for patterns that could predict the experience you’ll have.
Who else will be seeing my account information?
Find out if someone else at the firm is handling the hands-on work and their level of involvement in the day-to-day life of your portfolio. It’s likely that others in the office, such as an assistant who aids with paperwork or another adviser, may see your account. If you prefer that only your adviser see your information, say so.
Describe your own portfolio.
This is another hard one to verify, but the answer you get can tell you a lot. Everyone has different needs, but if the adviser invests in a radically different strategy than he or she would advocate for you, or if the adviser doesn’t invest in any of products he or she endorses, beware.
How have your investments performed in recent years?
Any Financial Adviser who promises steady, meaty returns from the stock market is dishonest – you can approximate returns, but you cannot promise them. You want to hear what your Financial Adviser’s view on the current market is and how best to manage your assets in boom and bust. Advisers who cite historical data to entice without substantiating or providing risk management are clearly just pushing sales.
What is your philosophy of money management?
Financial Advisers might have their own philosophies about money management. Find out if the Financial Adviser offers holistic financial planning and wealth management or specialized advise. Watch out for Financial Advisers who have never thought about this and hasvebeen blindly selling.
A good investing philosophy “should make sense” to clients, the interests of clients should be above advisers’ interests. Again, be wary of promises for guaranteed returns, secrecy in investing philosophies or any reckless trading strategies.
“Investment isn’t just about the percentage return,” Mr. Horan with the CFA Institute says. “It’s about saying ‘I have this set of needs, these things I want to accomplish and I want someone to care for this.’”
Can I have it in writing?
Do not choose to work with a Financial Adviser simply because he or she is related or acquainted to you. Choose a Financial Adviser because he or she is good!