What to ask your Financial Adviser

In the not too distant past, dealing with money was relatively simple for most of us. We acquired it as best we could, spent most of it on necessities and tried to put some of it away for a rainy day or a special occasion. If we had any left over we stored it in a bank account. But financial affairs have become increasingly complex, even for people with only modest means. That's why your authorised financial adviser could be one of the most important people in your life. But even if you hire an authorised financial adviser, your best interests can get lost in the shuffle unless you manage your relationship with your adviser. In this article we'll give you some tips to help you do that.

Providing financial advice is a full-time, demanding job, trying to keep abreast of a constantly changing marketplace of products and services as well as developments in financial markets around the world. Financial advisers spend a lot of time talking directly with their clients about their needs and their anxieties. The job takes knowledge, experience and a strategic focus, along with the courage and discipline to stick with a strategy in the face of inevitable market setbacks and the temptations of the thousands of alternatives that are always there.

We can't tell you exactly how to find the perfect authorised financial adviser. But the following questions can help you find a new adviser or get the most from your present adviser. Even if you think you already know the answers, you are almost guaranteed to profit from asking again.

Do you receive independent investment and economic research?

Although a little tongue in cheek to place this at number one, independent research should be an important facet in the offering of an authorised financial adviser. Did you know that internationally independent research is compulsory? This is not the case in New Zealand, although many of the top quality advisers do voluntarily receive research.

FundSource provides quantitative research on managed fund performance. Many financial advisers have access to FundSource research which they use to inform their independent fund recommendations to clients.

To get further insight into the independent research that FundSource provides advisers contact us.

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What is your ongoing commitment to me?

Look for an authorised financial adviser or planner who will leave you alone if you want to be left alone or who will call you if you want to be called. Look for somebody who will be available whenever you have a financial question, even one that seems trivial to you. Also look for somebody who will review your whole situation periodically without necessarily trying to sell you something new.

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Are you qualified to be my financial adviser?

All financial advisers must comply with the requirements of the Financial Advisers Act 2008. Compliance requirements for financial advisers depend on the type of services being provided. For example, people working for banks, insurance companies, mortgage and insurance brokers who provide advice on money, investing or financial plans require different levels of qualification.

For more information, refer to the FMA website.

Registered Financial Advisers can give advice for certain products while an Authorised Financial Adviser can provide services and investment planning services. A Qualifying Financial Entity (a business rather than an individual) provides financial adviser services and takes responsibility for the conduct of the financial advisers they employ.

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How many clients do you have? How much money do you manage, and how long have you managed it? What level of service will I get?

The number of clients and money under management may indicate an adviser who has inspired plenty of confidence. But an adviser with thousands of clients all over the country may be spread too thin to take care of your own needs. If you must have personal or telephone access to the person who makes decisions about how your money is invested, you'll obviously want to avoid an adviser who can't provide this ongoing service.

On the other hand, small firms that always have time to talk to you may not have the resources of a larger group. In the end, your comfort and your needs should prevail. Any adviser worth hiring has made decisions and choices that amount to a style of doing business. You'll be a happier client if you find out what that style is — and make sure it matches your own style.

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How would you describe your investment philosophy and style? And what are the limitations of this style?

Look for an answer you can understand well enough so you could explain the essentials of it to someone else. Ideally, you'll find an approach that fits your own personality and financial needs so well that you could adopt it for a lifetime. In the best case, you'll find somebody who produces good results and does it in a way that you would recommend him or her to a friend or relative.

In addition, an adviser should recognise and freely admit his or her limitations. Essentially what you are doing is trying to find an adviser you understand and are comfortable with.

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How are you compensated for the work you do for me? Do you receive any compensation or incentives from any product or service you recommend?

In some ways, this is one of the most important question you can ask, because it can expose potential conflicts of interest. Just bringing up the topic puts an adviser on notice that you know the potential for a problem. Whatever type of compensation your adviser receives, make sure you understand it in advance. An adviser paid on commission can have a direct financial stake in what you buy and (in some cases) a stake in how rapidly your portfolio turns over. There are excellent financial planners either way but this is important for the investor to understand.

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Are you currently invested yourself in those investments you are recommending to me?

The 'do as I say not as I do test'. This question is most pertinent when seeing a financial adviser that shares certain characteristics similar to you - such as age, life stage, risk profile, time until retirement, financial position and so on. If nothing else this question provides insight into the personal confidence an adviser has in those investments they are recommending. It's probably the closet thing you will get to a personal guarantee. If they don't invest personally into their recommended funds, "Why not?"

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Can you give me references of people you've worked with that have circumstances similar to mine?

If your finances are serious business to you, then you should check out references. Clients can tell you about service and satisfaction. Would they hire this financial adviser again? When they need something, how available, accessible and helpful is this adviser? Obviously the adviser will need to gain the permission of their clients to provide this information, but this step should create a degree of confidence in the adviser.

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Are you the subject of any complaints or disciplinary action? Have you ever filed for bankruptcy?

A good place to start for your own investigation should also be the Institute of Financial Advisers, by phoning 0800 40 44 22. The Financial Markets Authority (FMA) has a formal complaints process, and will conduct disciplinary proceedings arising from complaints about financial advisers relating to breaches of the Code of Professional Conduct for Authorised Financial Advisers.

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