For many of us, decisions relating to financial matters and investments are the hardest due to our emotional and sometimes irrational link to money. For this reason, it can help to find a financial advisor who can offer sound guidance around a core financial plan and investment strategy.
But the real trick is, how to select a financial advisor. How do you know which one is right for you?
The close nature of the client-advisor relationship underlies the need to find a trusted professional who is the right fit in terms of your outlook, life and ambitions. Too many advisors focus purely on selling financial products, because they are rewarded by commissions linked to the volume of transactions they make.
To ensure that you are receiving the best possible financial advice, here are some questions to ask your financial advisor:
- What are your qualifications?
- Are you tied to the manufacturer or provider of a particular product?
- How are you remunerated?
- What conflicts of interest might arise?
It’s important to find someone you trust and with whom you feel comfortable sharing your personal information. The person must be authentic and have a genuine interest in you and your wellbeing.
International research has highlighted six key attributes to look for in a financial advisor:
- The industry’s highest technical qualification, such as Certified Financial Planner status. This should ensure adequate technical competence with respect to investments, tax, estate planning, insurance, budgeting and other financial matters.
- A broad education and the ability to apply mature judgement. An advisor is dealing with your overall welfare and not just your finances. Therefore you need someone who is more than just a financial technician. Also consider the experience in the field of providing financial advice and client satisfaction as good measures to take into account when selecting your advisor.
- An intuitive and educated understanding of behavioural finance. You need someone who doesn’t fall prey to the typical mental mistakes people make as a result of emotional decision-making.
- A fee regime which minimises any tendency towards biased recommendations. It is wise to avoid advisors who rely mainly on transaction-based commissions. Rather than helping you stick to your financial strategy in the face of market noise, such advisors may encourage you to trade regularly in order to increase their commissions. Pay a fee for the service you need. Generally, advisors who are remunerated primarily on the basis of fees for initial and continuing advice are less likely to be responsive to incentives encouraging excessive trading. No true professional is going to provide free advice. Free advice is often worth what you paid for it.
- Access to significant technical resources and a team to provide continuity of service, should your advisor decide to move on or retire. While there are many good advisors, financial strategies are so complex that no one person can know everything. A good advisor is like an upstanding general practitioner; someone who has the ability to call in specialists as and when necessary. You need to know who will be there to guide you through the continuous changes, events and crises that will occur, either in your life or in the markets.
- A genuine sense of care. There is nothing more dangerous than a highly intelligent person who cares only about themselves. A caring advisor will show an interest in you as a person and understand and appreciate you beyond the money you have in the bank. Ask yourself whether the advice given is for you, the person, or only for the wealth you’ve accumulated.
It can be difficult to identify the difference between the offerings of wealth management firms and private banks. They all look the same, talk the same and promise to deliver the best service. The key differentiator, however, is the focus of the business. Do they provide purely wealth management services or are they burdened with additional service offerings and other sales targets, like banking services and a lending book that may make the company more profitable?
The right financial advisor has the ability and training to play a valuable and constructive role in contributing to your wealth and wellbeing and it’s worth shopping around until you find your right fit.
The good advisor checklist
You may already have a financial advisor, or you could be searching for a new partner. How can you tell if they are of quality?
Good advisors typically:
- Spend plenty of time listening and learning about you, your perceptions, experiences, feelings and desires. They take a personal interest in you.
- Have a broad framework of reference and experience.
- Help you understand your true needs and goals.
- Help you set clear benchmarks, to measure both your success and their own.
- Explain ideas and convey information confidently and clearly.
- Help you access the evidence objectively and avoid making mental mistakes.
- Challenge the status quo and encourage you to explore new horizons.
- Provide continuing transparent counsel about the performance of your investments and your general financial position.
- Provide perspective when investments are performing extremely well and identify opportunities when your investments are performing poorly.
Take your time to find the right advisor to suit your requirements and ensure that your financial plan is the best one for you.
Christelle Louw been an advisory partner at Citadel for 15 years and has 21 years of investment experience. She is passionate about the investment environment and enjoys making financial independence a reality for her clients. Her areas of focus are the corporate, entrepreneurial and female markets, having advised many inspiring women over the years.