Saturday, 15 November 2014

Five things to evaluate your Financial Adviser on...


You come into a sudden stash of cash on your hands and you decide to invest some for retirement or some future acquisition such as buying a house or car etc etc...

So you call up an investment adviser with the expectation that you will be given the best advice in allocating your capital. So you call up the one most advertised. You get some advise, but your work is  not done yet, because not all investment advisers are measured equally and you are right, some are more equal than some.

These five things can help you when evaluating a financial adviser:


  1. Fee Structure: Is the financial adviser giving you advice on fee basis linked to the product offering at the time you approach them or is the adviser giving you advice as a service offering with no connection to any particular investment product. By that I mean, do they recommend a product based on the fee they receive from selling that particular product to you regardless of what your investment objective may be or do they sell you a service at a flat fee while at the same time considering your best option with your investment objective in mind.
  2. Trust: Do you trust the person or the firm giving you the advice. I know this can be a difficult one to measure, but it is not hard. Start a relationship with the individual or institution and look at how they conduct business with you. Are you keeping more of your money or are they getting more of your money than you are? A key measure is how do they execute their fiduciary duties to you and other clients. Don't stress test the exchange to the point of destroying the relationship, but ask the hard question about the investment and be objective and rational. You may need some time alone to decide before you eventually invest your money so as many questions as you can. Take that time you need to evaluate the investment proposal and don't be pressured into any deal without independent consultation.
  3. Independence: Only you can decide what you believe to be in your best interest. The adviser can only recommend or suggest alternatives from which to choose from, but you have to decide. There is nothing wrong with researching and seeking the opinion of a second person before you decide. Prepare a checklist to make the decision process systematic. The greatest of all investors have a system that they work through like a checklist before they decide. Compare investment products apples to apples and choose base on your own comfort level. Work through your biases and be as rational as you possibly can.
  4. Rationale: Why you decide on buying a particular investment product must be known by you. You must know what the reasons are before buying an investment product. Whether the investment be for long term or short term goals, interest rate returns, inflation rate protection or living income while you hold the investment must be considered. You must know why your capital is sitting in that investment product and your reasoning should be without bias for lack of rationale.
  5. Accessibility: You want to have access to your adviser and you want to have access to your money with reasonable notice. It is a real challenge when you have made up your mind and can't find either adviser or money to execute your decision. The last thing you want to do is lose money and can't find the adviser. I would much rather lose the adviser and can find my money.

I hope that these five things can help you in finding the right investment adviser. The checklist provided here is not complete, but it is enough to get you started. So pick carefully and be mindful of the difference between the butcher and a dietitian 

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Feel free to ask questions and make comments.

FII