How to Get the Best Out of Your Financial Adviser

Article published by Morningstar

 Choosing an IFA can be daunting. Here are some questions you should ask when working with a financial adviser – and some red flags to watch out for.

In theory, UK investors have it good. Significant improvements in regulation in recent years have brought more transparency and fairness to the industry than there has ever been. Indeed, Morningstar regularly surveys the experience of investors worldwide through its Global Investor Experience Study and this research tells us that things are improving.

But there is still a way to go. UK legislation known as the Retail Distribution Review (RDR) brought into force in 2013 aimed to bring greater transparency by banning financial advisers from taking trail commission on funds and products sold to their clients.

Later, EU regulation MiFid II aimed to improve protections for investors and standardise industry practice across Europe.

Even with new rules in place, finding a financial adviser is often a daunting task. So here are three things you should look for when choosing an IFA, as well as a few red flags to watch out for.

  1. Is Your Financial Adviser Independent or Restricted?

As every individual’s needs are different when it comes to investing – depending on your goals, risk tolerance and time horizon among myriad other factors – you’ll want to make sure your financial adviser has access to as many different funds and products as possible.

A restricted adviser may only be able to offer you access to the funds of a handful of providers, whereas an independent financial adviser can access the whole of the market.

But the question of how broad the adviser’s tool kit is goes beyond this.

Advisers need to take a holistic view of the client’s financial situation:

  • What are the client’s assets, his liabilities, and tax situation?
  • What are his goals and how can he best achieve them?

An adviser who can consider everything from pensions and Isa to life insurance and critical illness cover, will be able to cover the entire financial planning gamut rather than just one aspect of your finances.

While unlucky investors may still come upon a single-fund peddling sales guy, these relics from the past are, happily, a dying breed.

If you are choosing an adviser, it makes sense to give yourself a quick financial audit first so you know what assets you have and broadly what your aims are and speaking to a few advisers before committing means you’re more likely to find one that suits.

  1. Does Your Financial Adviser Explain Things Clearly?

The investment industry is notoriously bogged down in techy talk and jargon, and it is the job of your financial adviser to steer clear of this and explain things to you clearly. Never be afraid to ask questions if you don’t understand!

While some people might want to discuss bear markets, correlation and shorting, the fact is that most investors are not financial experts and they have a right to understand what their adviser is trying to tell them.

An adviser hiding behind complicated-sounding technical terms is a red flag.

These days IFAs can easily use technology to demonstrate what they’re talking about using charts and graphics.

When you come away from seeing your adviser you should know:

  • How much does the advice and product cost?
  • What is the best-case scenario?
  • How does it work?
  • What are the risks ?

What to watch out for:

  • “Your portfolio is total rubbish – we need to do a reset now!” This isn’t very helpful advice and even if your portfolio isn’t quite right for your needs, an adviser should explain what does and doesn’t work and show you the best routes to get back not on track, not make you feel silly for past decisions.
  1. How Often Should You Speak to Your Adviser?

Getting set up with an adviser, especially if you are starting up an investment portfolio from scratch, might take a few meetings but after that – as any long-term investor knows – it’s important not to do too much tinkering.

Of course, it is always better to have started investing yesterday and we know the longer an investor ties up his capital, the longer it can work for him and unfold the magic of the compound interest effect.

But that doesn’t mean you should be rushed or pressured into signing a long-term investment contract.

Beware the IFA with special offers, discussing life insurance one week and mortgages the next – there is absolutely no need to respond to such last-call pitches.

Serious advisers should steer you calmly even through the worst of markets.

Indeed,  advisers we spoke to during the height of the Covid-19 pandemic were telling their clients not to panic sell, but to stay focused on their long term strategy.

 

If you haven’t had a review for a while and would like to discuss any area of your money or finance you can book a meeting HERE 

 

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