10 Questions To Ask Your Financial Adviser At Your First Meeting

Choosing a financial adviser is a decision that should not be taken lightly. The difference between a good and a bad financial adviser can easily be hundreds of thousands of pounds. The problem is that most people have little financial knowledge and have absolute trust in their financial adviser to protect your financial future.

Over the years we’ve heard of many people getting swindled out of thousands by an unqualified adviser. However, this should now be a thing of the past, given how very tightly regulated the financial planning industry has become.

Questions To Ask Your Financial Adviser

That all said, below are ten questions to ask your financial adviser at your first meeting. Make sure you’re happy with the responses before you sign over your financial future.

Are You a Registered Independent Financial Adviser?

To practice as a Financial Adviser in the UK, you must be registered with the Financial Conduct Authority (FCA). You can check the FCA’s online register for any adviser throughout the UK to ensure that they are regulated to give advice.

You may also wish to confirm that your adviser is an Independent Financial Adviser (IFA) as opposed to a Restricted Adviser that is tied to product providers and their range of products.

IFA’s, also known as “whole of market” advisers, provide tailored advice based on their unbiased research across the entirety of the financial market to source the best products/investments that are available.

What Qualifications Do You Hold?

IFA’s in the UK must hold a minimum Level 4 Diploma in Financial Planning certificate which they will have acquired through an institution approved by the FCA, for example, The Chartered Insurers Institute (CII).

Also, your IFA will need to display their Statement of Professional Standing certificate. This is a certificate issued by the FCA affirming the legitimacy of your qualifications and registration with the FCA.

Tell Me About Your Experience and Your Area of Speciality

Financial planning can be a very complex field requiring vast knowledge across many different areas for which IFA’s are required to have a level of knowledge and suitable qualifications to advise upon.

Similar to many professions, IFA’s may opt to specialise in a specific area(s), for example, retirement or inheritance tax (IHT) planning. It is essential to understand your IFA’s experience and any areas of speciality and how they relay to your personal requirements.

Most advisers would be delighted to advise you on your affairs and refer you to a trusted specialist for critical areas of financial planning, should one be required.

What Is Your Fee and Service Structure?

In your first client meeting, your adviser will provide you with a Client Agreement for reading and signature, should you decide to proceed with advice. The agreement will outline various details including the services on offer and the applicable fees, both initial and ongoing, pending on the service which you require.

You need to make sure you under the fee’s involved for the entire lifespan of the product. Remember, the adviser fee’s can decimate your savings over time.

How Will Our Relationship Work, Especially Over the Longer Term?

What we’re trying to understand here is twofold, firstly how much access you’re going to have to the adviser, and what happens when they retire or perhaps change profession.

Over the years we have met many people who’ve signed up with one advisor, only for that adviser to either pass them off to a junior admin officer or to for the advisor to change career paths and never to be seen again.

Remember, financial advice is only as good as the laws that support it. If the inheritance tax laws change, for example, the information on how to protect your assets will also change. You need to be able to speak with your financial advisor to makes these changes.

Are You A Truly Independent Adviser?

Across the market the are independent financial advisers (IFA’s) and then there are truly independent financial advisers. The difference between the two comes down the products and plans they can offer.

The first will typically have a range of products and plans from the top global names in financial and investment planning. These plans generally are structured plans with very little flexibility and carry hefty penalties for early exists, which is bad news if you’re anything like me and have no real clue of how life is going to turn out.

The latter is a truly independent advisor, not only will they have ridged plans and products for those that need help disciplining themselves to save money, but they also have products that don’t tie you into the long term and is totally flexible.

What Do To Ensure My Money Is Secure?

This question is double-edged. Firstly I’m asking about the security of my money, and secondly, we’re talking about the adviser’s investment philosophy. How does he/she protect assets in a recession?

What’s Your Investment Philosophy?

This line of questioning not only discusses how the adviser invests money into the market, but also should start a conversation about risk and reward and your time horizons. I’m a firm believer that you should be taking risk in the early the part of your saving time horizon and reducing that risk as you get closer to your time horizon where you need the money back. You’d be amazed at how many advisors that I’ve met over the last few years that have little or no investment philosophy.

Investment philosophy should also cover their investing approach and whether they are actively involved in the customisation of portfolios. Financial advisors will often customise a portfolio based on their client’s needs and time horizons.

As I mentioned above, I’m a firm believer that you should be taking risk in the early the part of your saving time horizon and reducing that risk as you get closer to your time horizon. As a result, if you’re at the start of your investment, you’re going to have a very different portfolio than someone who is at the end of their investment time horizon.

Diversification should be another conversation that you’re having with your adviser when you start to talk about investment philosophy. A fully diversified portfolio should not just include FTSE100 companies but should consist of both mature and emerging markets across the range of small, mid and large-cap stocks. I would also be looking for portfolios to contain bonds, property, and commodity listings.

The final line of questioning around a financial advisor’s investment philosophy is how they measure their performance. Too often, I meet people whose financial advisers judge themselves by the market. For example, they will base their performance on the FTSE 100. If the FTSE 100 goes up by 10% and they return 12% the client, they’ve done well.

The problem, they’ve also done well if the FTSE loses 30.9% as in the recession of 2008, but they’ve only lost 20%. The problem with this attitude, you’ve still lost 20%, and you’ll still need a 25% return to recover your money. If you’ve already started withdrawing money from your portfolio, the damage could be much worse.

What’s Your Target Rate of Return

This is a great question that shows the difference between advisors and salesman. Salesmen will tell you that you can achieve 12% per annum. They base this on the average annual return from 1923 (the year of the S&P’s inception) through 2016 which is 12.25% (Dividends Included) or the average return of the FTSE All-Share from 1962 to 2018 which is just over 11%.

The real problem is the majority of people are not going to have a time horizon of when they want their money back of nearly 100 years. For the majority who are reading this blog, as best it’s 30-40 years and probably a lot shorter.

If we took 15 years as a starting point, the FTSE has returned, the Dow, the S&P, Emerging Markets and the all-share markets have

What Do You Think Of My Financial Situation?

Re-examine your investment goals, time horizon, risk tolerance and financial circumstances. Have any of these objectives or circumstances changed since your last meeting?

Have you recently moved into more conservative investments? If so, make sure to ask your financial professional if your current mix will still allow you to meet your long-term goals.

Am I Still on Track to Meet My Time Horizon?

Should I have multiple time horizons for different financial goals? Life changes all the time, and those changes can impact your financial plan. Maybe it’s time to start saving for your kids’ college. Maybe your aging parents had recent health issues and you want to be prepared to help. Maybe you’re well beyond investing 15% of your income in retirement accounts and you want to get into real estate investing. As your finances shift with time, you need to discuss these changes with your adviser.

Finally

As a final question to a new financial advisor, I would also be asking them where their money is invested and how they go about protecting their assets.

I want an advisor who practices what they preach. I would also ask for proof. If the advisor starts talking about their investment products that they’ve been using to build their retirement fund, ask to see a statement. Any advisor who is not willing to show you where they keep their money probably has something to hide and would not be my first choice of a financial advisor.

Most importantly, remember, there are a lot of financial advisers across the market. You’re likely going to be speaking with this person a lot of the next few years, and therefore you must choose wisely.

TheRetirementBlog.co.uk

TheRetirementBlog.co.uk is written by David Jacobs who is on a quest to retire early and get out of the rat race. David is a financial expert who lives for early retirement. Follow his journey making money, saving and investing to retire early and get the best out of his retirement.

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