Financial Planning

7 questions for your financial adviser

8th February 2018

The Author: Nygel Harriman

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Nygel is both client adviser and regional manager of our Geneva office. He loves the longer term relationships with clients working consistently to achieve their goals.

We live in a society where the client is king and you have the power to make decisions about what you need and who you want to provide it. That said, many people take far longer deciding what to buy during their weekly shop, or on organising a holiday than they do planning their future.

When it comes to managing your financial future, you’ll probably prefer working with someone you trust. Someone that inspires confidence, and someone who has the knowledge and skill to provide you with a service that best serves your interests.

It can sometimes be tough to ask the ‘difficult’ questions but remember, you have the power here.  Focused research gives you peace of mind and is well worth the effort as it can save you both heartache and money.

Your financial adviser should be able to answer your questions directly, provide documentation about all aspects of their services and business, and clearly articulate their value.

The aim here is not to trick your adviser or planner, but rather to gain an honest and open insight into whether you are both a good fit and whether working together will be beneficial to realising your future goals. This is your ‘due diligence’ for protecting your future.

1. What services do you provide?

When you first meet with an adviser, you may not be able to completely define all the services you’d like.  By asking this question, you’re trying to determine whether their services meet your needs as you understand them.

Asking this question not only identifies the services offered but also brings to light any services that are not provided.  It helps you determine whether this is a comprehensive financial planning service. If the service proposition revolves around you, your family, and your lifestyle. Or, whether it is a service solely focussed on investments and selling you financial products.

You’ll deal with either a Financial Adviser or a Financial Planner.  In broad terms, a Financial Adviser helps you manage money and related activities. The role of a Financial Planner is to help you create and maintain a financial plan to meet long-term objectives and may also include the Financial Adviser role as part of that undertaking.

While every financial planner is a financial adviser, not every financial adviser is a financial planner.

If an adviser only offers investments, then that’s all you’ll get.  If an adviser, or financial planner, adopts a holistic approach to financial planning and investment, it’s more likely that you will be able to use their services to satisfy a whole range of associated needs. This is likely to include lifestyle financial planning, retirement planning, cash-flow planning, portfolio management, and estate planning.

2. How do you charge, and how much do you charge?

When you first think about whether or not to take financial advice, you are likely to want to know how much the service is going to cost you. A financial adviser or planner should at least be able to provide you with an estimate before you agree to become a client.

It all depends on how charges are calculated and paid; whether by fees or commission, or a hybrid of both.  Many financial advisers, for instance, charge a percentage of the portfolio they manage for you, and it’s not uncommon for this to represent between 1% and 1.5% of the value of your portfolio annually.  If you wish to receive a holistic financial planning service from a financial planner, they may charge a planning fee for the service plus costs associated with managing any financial products.

Broadly, there are three types of fee structures:

  • Fee-only”:
    • Paid exclusively from a fee you pay.
    • May be paid as a percentage of assets invested, an hourly rate depending on the work performed, or a retainer commonly paid monthly or annually.
  • Fee-based”:
    • Paid from a fee you pay and commissions from products you buy.
  • Commission only”:
    • Only paid via commissions from products you buy.

It is a good idea to try and get a feeling for what your costs will be up front and what incentive exists, if any, to sell you financial products.

Here are some additional questions you may like to ask to clarify your understanding of fees:

  • Do you have a minimum fee?
  • Do you have a minimum portfolio size?
  • Is there a financial planning fee?
  • How do you get paid for investments you recommend?
  • If you manage a financial portfolio for me, do you charge a percentage of assets under management?
  • Are you paid commissions on investments or products you sell?
  • How am I billed (frequency and from what accounts)?
  • Do you receive payments from mutual funds or investment companies?
  • What other costs will I incur apart from what I pay you?
  • How does billing work? What is the frequency and mechanics of your billing system?
  • Do I need to pay fees to you or can they be taken from my investments?

3. What is your investment approach?

Your adviser should be able to articulate their investment philosophy in terms you can understand and this should reflect a process-driven approach, time-tested by a team of professionals.

Does your adviser or planner purport to be in business to make you money through high returns?  If you receive this feedback ask how they might do that because making such a claim is sheer hubris as no-one knows what the future holds.

Another way of phrasing this question might be “Do you believe you can beat the market?” to which the only sensible answer should be “No”.

If your adviser contends that they make investments consistent with your tolerance to risk and your aspirations and are open about how the market operates and its inherent fluctuations. Then, entering into a relationship with them may be worth considering.

4. Could I see an example financial plan?

This question gives you the opportunity to see what your adviser offers and to have a conversation with them around what you like, don’t like, want, don’t want, and what level of information you expect during your relationship.

From the example financial plan you should also be able to determine how closely it relates to an individual’s objectives and how useful and flexible it might be as an evolving tool to ensure you stay on track over time.

5. What types of clients do you specialise in?

The ultimate reason for asking this question is to try and determine whether you and the adviser or planner are a good fit. Another way of phrasing this might be “Who is your ideal client?”

This question may help to identify the typical client profile(s) your adviser or planner prefers and whether they operate within niche markets or specialist client segments. This enables you to determine whether the company philosophy fits your requirements and expectations.

You might also be interested in asking how many clients the adviser or planner takes on each year. This is because the number of clients serviced tends to have a direct correlation with the level of service.  A smaller number of clients often represents an increase in the amount of personal service.  Be aware, however, that fees may also be affected; fewer clients and more personal service may mean a higher cost.

6. What level of contact do you usually have with each of your clients?

This question aims to start a conversation about the level of interaction the adviser or planner typically expects to have with a client.

Additional questions you might want to ask during this conversation might include:

  • How often, and by what medium, do you communicate with clients?
  • Whose responsibility is it to make sure there is regular contact?
  • Do you proactively communicate your rationale for any decisions to buy or sell, and how do you do that?
  • How do you make sure every client receives personal and professional service?

Usually, a financial adviser should communicate transparently in a way that best suits the client.This is your opportunity to make sure you voice your preferred communication method(s) and contact interval.  If your adviser is based abroad, it is also an excellent opportunity to make sure that any communications will be in your preferred language.

This leads to a conversation about what happens at each meeting; does the adviser merely review the performance of your portfolio?  This is a backwards-looking approach.  Or, do they take the opportunity to forward-plan and ensure your financial plan is continually on track with your goal? This is a forward-looking approach.

The question can also be used to lead into a conversation about how much is charged for each review and enables you to match the service offered with your needs and expectations as well as what you’re willing to pay for the service.

7. Will I work solely with you, or with a team?

You wouldn’t be blamed for thinking that an adviser operating alone might provide a more personal service. But, counterintuitively, advisers working within a team environment tend to be more productive and foster deeper client relationships*. Whatever the organisational situation, it is a good idea to understand what to expect, and explain the type of relationship you want.

The team is essential because the service you expect needs to have continuity even when your adviser or planner is, for instance, on holiday.

…and finally

Your relationship with your adviser affects your long-term financial plans. We hope these questions will help you understand what type of relationship you’re getting into and what you’re paying for.

*PriceMetrix report 2015

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5 reasons to get a documented financial plan

6 Benefits of Financial Independence

5 financial recommendations to consider before you’re 30