The financial planning industry has come a long way in recent years to becoming a true profession and to remove itself from the bad publicity from a few bad eggs. But when you’re entrusting someone with your life savings, it’s important to be sure that you’re trusting the right person. So how can you know?
I’ve compiled a list of questions you might like to ask to help you work it out:
1. What is your background and experience?
It helps to know that your prospective adviser already has several years of experience and has been through a number of market downturns. Finding out just what your adviser was doing over the past several years can help you to know if their strategies and risk tolerances fit well with yours.
2. What licenses and qualifications do you hold.
In Australia, an adviser must have completed a Bachelor’s Degree or equivalent and must have passed the financial adviser exam. They must also be registered as a Financial Adviser with ASIC. Any additional studies over and above this are icing on the cake.
3. How are you paid and how do you charge?
Comparing the way in which an adviser is paid can help to determine if they might have a conflict of interest. In general, the industry is moving away from percentage-based fees (and commission is no longer allowed). It might help to understand whether they receive incentive bonuses or other such remuneration that might create a conflict in the recommendations that they make.
4. What is your investment philosophy? What strategies do you use?
Your potential adviser should be able to explain what they consider to be important in investing, and how they address investment risk. Everyone is different in what they feel is important, whether it is maximising returns, keeping your capital safe or it might even be that you would like to invest sustainably. Make sure you work with an adviser who can accommodate what’s most important to you.
5. Describe your usual client and area of expertise?
Some advisers are more holistic while others specialise. It’s important to understand if they have adequate knowledge in the area of advice that you need, or if you are best to be referred to someone else.
6. Can you show me some sample portfolios?
Your adviser should be able to give you some very specific ideas of what to expect from their work. Sample portfolios will help you to understand exactly how your adviser will recommend that you allocate your funds and handle volatility.