SELECTING A FINANCIAL ADVISOR


Investing & Money
piece written on the 28th January 2015 by  

This is a really massive topic, a topic I’ve wanted to talk about for a long time and it just so happens that Momentum would like me to cover it. What a perfect opportunity.

I hear a lot of people saying that you don’t need a financial advisor, there are two people who say this sort of thing:

  1. People who understand their investments incredibly well.
  2. People who are trying to sound as though they understand it all already.

So here’s the thing: I’ve spent the last few years learning everything I can about investing, trading, unit trusts, ETFs, property and so the list goes on. I have honestly applied myself and I believe that I’m in a position where I can make decisions myself about financial investments without the assistance of an advisor. The reason I’ve done this is because advisors charge a fee on your investment and because I have the knowledge I’d like to avoid paying that fee. But, anyone who comes to me for an opinion on this, I say this:

Spend a few years learning everything and when I say this, I mean really learning. You cannot read a few articles and assume you know everything. You can’t jump on a surf board a few times and then think you can catch a 15 feet ripper in Hawaii – You’re going to fall, badly. The same will happen with your investments – do you really want to run into a problem 20 years down the line when you’ve missed something about tax or how RA’s have reinvestment requirements and so forth. So, if you (like most people) don’t have the time to really apply yourself, then you need to get an advisor – their 2 or 3 percent commission will be a lot less than you falling down the line!

In fact, I actually steer people towards getting an advisor because I don’t believe many people have a passion for understanding how all of this works, without a passion you’ll make a mistake and I am certainly not being the person who steered them away from an advisor into doing it themselves! Sure, there are things you can do without an advisor, but I reckon it’s best to let a professional look after your investments than taking it into your own hands.

This brings us onto the topic of the article, “Selecting a Financial Advisor”. How on earth do you go about doing this? Really good question. I’ve met 11 financial advisors in the past 3 years and I decided to go with someone who I felt would take the time to talk to me. So my requirement was a bit different: I wanted to basically give someone a small investment portfolio to manage merely so that I could learn from them. I’m not too interested in the growth of the investment in monetary turns, but rather the growth of my knowledge.

There are a number of questions you may ask a financial advisor or things to look out for to get an idea, but before that I want to mention that I feel one of the most important things is that you feel comfortable with the person and that you feel comfortable approaching them for assistance – if you feel like you can’t ask for help or that they’re too busy, then DO NOT go forwards with them. Here are some questions you may ask:

  1. Do they have a strong track record and what is their job experience.
  2. How long have they been assisting people with their financial requirements.
  3. What is their fee structure, and how are they going to make you money.
  4. Discuss risk with the planner, make sure they understand your position.
  5. What specific suggestions would the advisor make to improve your cash management.
  6. With knowledge being power, what more can the advisor tell you about investing.

But, the most important thing for me is this:

Is the advisor merely trying to up sell you a service they’re associated with.

I have sat in too many meetings where advisors are trying to up sell the same products over and over, this puts me off because of the bias. If they at least talk of other options that they don’t directly benefit from, it gives to a really good idea as to whether they are merely up selling you for not. Be really careful about this, it’s probably the best piece of advise I can offer you.

Remember: Inflation is 6% or so, if the advisor charges 2% that means your portfolio needs to make 8% per annum to merely break even – daunting thought, so do not rush into this my friends.