20 questions every financial adviser should answer
Financial advisers are a dime a dozen in South Africa. Walk into any investment firm and you'll find them, sitting behind their fancy desks in their tailor-made suites and large offices crunching numbers.
They come across as bold and confident and in some cases; their knowledge of the investment environment can be intimidating. But just because a financial adviser looks like he knows what he's doing, doesn't mean that he really does.
Because of this, many investors blindly put their money into the trust of a well-dressed stranger never questioning if this is truly the right person for the job.
You've worked hard for the cash you're handing over. So you must make sure that you're handing over your money to the right person that has your best financial interests at heart.
To help you find the right person to manage your money, I've put together a list of 20 questions that you must ask your financial adviser.
But before I get to that, let's take a look at what exactly makes a good financial adviser.
Five characteristics of a good financial adviser
You need a financial adviser whose recommendations you can trust. If you feel nervous, fearful or stressed out after discussions with your adviser, trust your instincts and end the relationship.
Sound financial advice is based on more than just your income level or the types of asset classes you invest in. A good financial adviser will take the time to learn about your full financial situation, investigating your banking, investment, insurance and credit needs. Only by understanding your spending habits, debt obligations, life goals and more can a financial adviser begin to develop a meaningful and accurate strategy.
So use these questions to help you assess whether the financial advisers you meet have the right characteristics to take you on your financial journey.
1. Good financial advisers are well informed
If you want to get the best service possible, make sure that you find a financial adviser that is well educated and well informed. Sure, it’s not always possible to know what the markets are going to do but you need someone who is able to use his knowledge and experience to adapt to any sudden changes.
2. Good financial advisers pay attention to their clients
Before meeting with a potential adviser, you’ll have the opportunity to assess how they treat clients. You want to make sure that your adviser returns your calls, replies to emails and delivers excellent customer service. If the adviser doesn’t do this before he signs you on, chances are that once you’re signed up, he won’t deliver the service you expect from a true professional.
3. Good financial advisers are willing to teach
When interacting with your financial adviser, make sure that he is willing to show you his calculations, forecasts and decision making process. By sharing his knowledge, he will help you to make well-informed decisions with your money.
4. Good financial advisers don’t panic
When the market is in turmoil, a good financial adviser will let you know exactly what’s happening in the markets and reassure you that he is doing everything in his power to protect your investments. You want to make sure that the adviser is evaluating the best options for you by following a strategic plan.
5. A good financial adviser has a solid reputation
The best financial advisers are often the ones that are referred to you by a family member or friend. If someone you trust is willing to refer a financial adviser that means he must be good at what he does. Don’t forget to look into the background of the company or firm the financial adviser works for too.
20 questions you need to ask your financial adviser
Remember, it doesn’t matter how much money you are handing over, these questions will help you find the best adviser on the market. If the person behind the desk refuses to answer these questions, then you know that you need to look elsewhere for your adviser.
A financial adviser that is serious about your financial future will do everything in his power to keep you happy. He will be patient and explain everything to you in detail until you understand exactly how your money will be managed.
These questions should be easy for an experienced, trusted and caring financial adviser to answer.
1. Are you FSB approved?
To protect South Africans from scam artists, every financial adviser must be licensed with the Financial Services Board (FSB). If the person you’re speaking can’t show you hi papers, get out and move on. You want to be sure that you have someone who is trusted by government to deliver on your expectations.
2. Can I see your qualifications?
This could be a tricky question for the adviser to answer. Yu see, most financial advisers are certified financial planners (CFP). However, some financial advisers have been in the game so long that they don’t have qualifications from universities. So what you should really be asking for is if the financial adviser meets the requirements of the Financial Advisery and Intermediary Services Act (FAIS).
3. Who do you work for?
Most financial advisers work for a large corporate institution. But they operate on their own and work independently. If you’re uncertain ask him who he works for. You might find that he works for himself, but that doesn’t mean that they don’t know what they’re doing.
4. Which companies do you represent?
Financial advisers may have contracts to sell products from a wide range of companies. Get a list of these companies and check the reputation of each business. It will also help you to understand what financial products are available to you and the range of services your financial adviser can offer.
5. How long have you been in business?
Now if they do operate 100% independently, then experience is important. Ask them how long they’ve been in business for themselves. You need someone who knows what they doing because you want to increase your chances of finding the right guy for the job.
6. How many clients do you have right now?
It’s important to understand how many people trust the financial adviser with their money. Don’t be afraid to ask how many clients the financial adviser assists. You also want to make sure that he is not too busy to help you if you have any urgent questions.
This guy will be dealing with your money, so there’s no such thing as a personal question. Ask him for the contact details of some of the people that he’s helped in the past. This way, you can call them and check on the level of service he offers.
7. Can I have a list of references?
8. How often will you contact me?
It is important to ask how often the adviser will be in contact with you. Of course, you want to make sure that you get regular updates on your finances. Some financial advisers will contact you once a month; others will contact you once a year. This all depends on what you need. So make sure the adviser agrees to contact you as much as you need him to.
There are many different types of financial advisers out there. They each have an area of expertise. Find out what their specialisation is and if it fits in with your financial goals. Some are just investment advisers and are qualified enough to only give you advice on investments – others offer financial planning around retirement, insurance and tax planning.
9. What is your area of expertise?
10. Do you offer indemnity insurance?
Indemnity insurance gives you an important level of protection if your money is lost due to negligence or bad decisions taken by the adviser. This type of insurance is a must, especially if you choose an independent adviser or a small company.
11. How do you make your money?
There are three options for advisers to make money. The first is solely based on commission they get from the financial products they sell. The second is to take professional fees for their services. The third is a combination of professional fees and commission. Make sure you know in advance what will be paid and who will be paying it – is it you or the company whose product the adviser is selling?
12. What is the minimum amount you’re willing to work with?
Some financial advisers will only work with you if you have a large sum of money to invest. So ask upfront, how much money he is willing to work with. This way you’ll know immediately if you’re wasting your time with this adviser or not.
13. What happens to my investment if you are not around?
It is important to find out if there is someone to support the adviser you choose. If the adviser falls ill or dies there must be someone to take over your finances and investments. This particularly important if you choose an independent adviser that works on his own. Make sure that there is always someone as back up.
14. What investment solutions can you offer me?
Before you commit to your adviser find out about all the investment solutions he has to offer. Once you have this information, you can make the best decisions for your money.
15. What investment solutions don’t you offer?
This question is just as important because it helps you understand how the level of honesty you’re getting from the adviser. It’s also a good way to gauge his understanding of the competition. You need to find an adviser that is in touch with the markets.
16. Can I see a sample of your financial plan?
Each financial adviser has their own way of doing things. There’s no specific structure to follow which can make the entire process quite confusing. Some advisers will show you pages of charts and projections. If they can’t explain exactly what the plan entails, you need to ask.
Once you explain your needs to the financial adviser, ask him if he understands exactly what it is that you want. If necessary have him repeat your wishes to make sure that you’re on the same page. If he gets frustrated, you know that he is not on your team.
17. Do you understand what I want from my investments?
Allow the financial adviser to show you the type of products that he has in mind specifically for your investments. Review each of the products carefully before you make your selection. Identify one or two of the investment options and then ask the next question.
18. What products do you recommend for me?
19. Why do you believe these products are right for me?
It is important to know exactly why your financial adviser recommends the products for you. He needs to be transparent in his explanation. Asking this question will help you understand his motives behind his recommendations.
20. What are the risks associated with these solutions?
Don’t be fooled by attractive investment gains on complicated spreadsheets. Every investment comes with risk. So ask the financial adviser to explain all the risks involved. This includes how much you stand to lose if the market moves against you.
One of the things to look out for in a financial adviser is passion. He needs to love what he does and this has to show in the way he deals with you.
So, make sure that you ask all these questions, find the characteristics I’ve mentioned above and you’ll be in a better financial situation.
Remember, you’re trusting your money to this person. Your financial advisor answers to you. Don’t be afraid to tell him when you don’t like an investment. It’s your right to reject his advice.