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Questions to ask a financial adviser

3 Minute Read

Trying to choose a financial adviser? Here are some questions you can ask to help you sort the good from the bad.

Choosing a financial adviser can be a daunting task. The truth is, there is still a large range in the quality of advisers and advice given within the industry, with some not so good and some really great advisers that genuinely care deeply for their clients. Here are some key questions to help you sort the good from the bad.

How many clients do you have and do you cap client numbers per adviser?
Some advisers have hundreds of clients. In our view it is simply impossible for an adviser to provide the service clients deserve to that many clients. It also means the adviser may be spending large amounts of time looking for new clients rather than looking after the existing ones. Depending on the support structure and complexity of clients, we believe it is sustainable for an adviser to have around 100 clients. Simply having a cap in the first place should tell you the firm cares about their clients.

Do you recommend in house products?
There are literally thousands of products to choose from within the industry. If an adviser is recommending a product that is owned by the same firm, you are right to be sceptical and to enquire about whether the advisers compensation is directly or indirectly linked to these products. It is also important to enquire about what alternative products were considered, and why the in house product is better.

How do you charge fees?
Fees should be clearly detailed and aligned to your interests. It’s important to also determine if any product commissions are being paid, or whether any fees are linked to activities such as brokerage commission on share trades, as these incentives can lead to behaviours such as excess trading.

Who are your typical clients?
Providing financial advice is complex and can cover many aspects and many different types of clients. Some advisers and service offerings are tailored to different types of clients and specialist areas, so it’s important to determine whether your adviser has the necessary expertise to meet your needs. In other words, the adviser’s typically clients are in a similar position to you.

How much freedom do you have to make recommendations?
Many financial advisers have restrictive approved product lists or their own products to recommend, which means you may not be getting recommended the best available products in the market. Some advisers also work for large institutions, including those run overseas, that have management policies that are designed to manage hundreds of advisers. This means your adviser may not be free to recommend what’s in your best interest as they are beholden to a large institution that cares more about the fees being paid by the clients, and not as much about great outcomes for the clients.

What are your qualifications and how much experience do you have?
We believe it is important to understand an adviser’s qualifications. Most financial advisers are now required to have a university degree or equivalent. Not only that, it is important to know whether an adviser has taken their studies further with specialist knowledge, as this will provide an indication not only of their relevant specialist knowledge, but also of their dedication to providing the best advice. Qualifications such as a Master of Financial Planning or the Certified Financial Planner (CFP) designation are highly regarded, whilst being a Chartered Financial Analyst (CFA) is the highest recognised qualification in investment management globally.

Do you personally invest in the same products you recommend?
A product is right for a client if it supports their financial objectives or goals. Given this, there will of course be many products an Adviser may recommend to clients that they may not choose themselves. However, it is always worth asking whether an adviser is investing in the same products they recommend, and if not, why? If an investment is good enough to be recommended to clients, then the adviser should be willing to invest in it themselves, if indeed it is appropriate for their situation. Another good sense check is to ask whether they would be recommending these products to family members who are in the same position as you, as a client.

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