At this time of year many households will embark on a spring clean of their finances. I would guess that one of the most common new year’s resolutions that people make is to get their finances sorted, and in the act of doing so, many conclude that they need a bit of help.
And it is pretty typical that we see a bit of a spike in enquiries to financial advisers around this time of year.
Dealing with a financial adviser for the first time can feel like an intimidating experience because we have deep rooted feelings and beliefs about money, combined with a very British reluctance to a) discuss money and b) ask for help.
Any adviser worth their salt should endeavour to make you feel as comfortable as possible in a first meeting, but even with the best of intentions there is almost certainly going to be a knowledge gap. Indeed, that’s the whole point that you are there in the first place!
To offer a tangential example, as I am in conventional terms hopeless when it comes to anything remotely practical, I know nothing about the inner workings of my car. Therefore when I approach a mechanic, it is very difficult for me to get a sense of whether they are credible or not. I don’t even know where to begin, what questions to ask.
So while I wait for someone to send me the ten questions to ask a mechanic, this week’s post is “ten questions to ask a financial adviser”.
These aren’t listed in any kind of specific order, if you are ever meeting with an adviser you can pick and choose from them as needed. But I would suggest that these will at least give you a decent idea of the person that you sat across the table from.
1. Are you registered with the FCA (the Financial Conduct Authority)?
If the answer to this is anything other than “yes, and here is where you can find me” – well…run a mile.
If you want to verify the answer, and I suggest that you do, you can find the FCA register of approved individuals here.
2. Who will I call when I have a question?
You might think this a fairly basic one, but advice firms run all kinds of different models and your day to day contact with the firm may not be with the person that you meet in that first meeting.
This may work just fine for you. But if you are expecting to deal full-time with that adviser, and it transpires that you will only have access to them once a year then there is potential for disappointment.
3. How will we communicate with each other, and how often will we meet face to face?
Follows on from the last one, fairly basic but important to know.
Most advice firms will provide an annual review meeting with the client as standard – but it is important to be clear on whether the ongoing service that the adviser offers will cover an “out of the blue” meeting or call should you have any issues that need to be addressed.
Post COVID a lot of clients have been happy to arrange video calls, rather than have me sit in their living room eating their biscuits. But regardless of whether you prefer face to face conversation or calls or WhatsApp’s as your primary method of communication, it is important to be clear about this from the outset.
4. How many clients do you have at the moment?
This is one that advisers are definitely fond of asking other advisers, but it isn’t one that clients or prospective clients ask all that often.
If your adviser is promising you the sun, the moon and the stars in terms of service but they already have 200 clients then something doesn’t add up. There are, after all, only 260 working days in the year and there are a lot of moving parts to address to do the job properly.
5. How many clients do you think that you can look after well?
This will give you an idea of how much competition you are going to have for your adviser’s attention down the line. An organised principal financial planner at a firm should have a clear idea of where their business is headed, and be transparent about that with you.
A key part of what you are paying for is the trust that you have in your adviser, and that is only built through a consistency of relationship over time.
It isn’t much fun to feel side-lined by your adviser as their firm grows over the years.
6. What is your investment philosophy?
I have my own firm views about how money should be managed, and others will naturally disagree. That is fine, that is what makes a market.
But what you should be looking for here is evidence of a well thought out and clear approach to investing that your adviser is easily able to articulate.
The City is fond of manufacturing complexity, and there are more than enough weird and wonderful investment products out there to sate even the most esoteric investor.
But if an adviser is recommending that someone place their family’s life savings into an investment product, it is surely table stakes that they must know the features and risks inside out and be able to articulate these clearly. A lack of understanding is no big deal when the sun is shining, but God forbid if one day these things blow up and the adviser can’t explain to their client why it has happened - then that is a fairly major problem.
As an aside, none of you ever need to invest in anything unregulated. Ever.
7. How do you invest your money?
I am astonished that we don’t get asked this more.
As the client you are potentially entrusting your life savings to this person, don’t you think it is important to know that they are eating their own cooking?
8. How will you charge me for your services?
Like investment philosophies, adviser firms’ charging structures will naturally differ. An increasingly diverse and competitive marketplace can only be a good thing for consumers.
The profession has made great strides in how fees are presented to the client, but I still see some charging structures that rival the enigma code in terms of complexity.
Your adviser should be able to clearly explain all the charges that you will pay – not only for their service, but also for any financial products that they recommend as well.
9. What conflicts of interest do you think exist in your role as my adviser?
No business model is entirely without conflict.
Your adviser may receive a commission for recommending a certain product to you. If your adviser is charging a percentage fee based on the assets that they manage on your behalf – then they may be incentivised to recommend that you invest as much of your money with them as possible. At a basic level, in order to maximise profits I suppose that any financial adviser (or services business for that matter) is incentivised to do as little work as possible for the fee the client pays.
These are of course theoretical, rather than actual conflicts. Ultimately, when you are paying someone for advice you have to trust that they have your best interests at heart and won’t allow commercial considerations to override these.
Again, it’s a matter of transparency. A good adviser will be able to articulate any potential conflicts that they foresee, and identify how they will seek to mitigate them.
A clear explanation of the key deliverables and minimum service standards that you should expect from an advice firm is an example of good practice.
10. How would you define success in our relationship?
A successful client/adviser relationship is not about the recommended investments outperforming an arbitrary benchmark.
It’s about you being able to live the life that you want to, while having faith that your adviser is well and truly in your corner.
It’s about you knowing that at the point of maximum stress, when every fibre in your being wants to abandon the plan, that your adviser won’t be hiding on the golf course. That instead they will be available to remind you why you have the plan that you do and the overriding, critical importance of sticking with it.
I recognise that a lot of this is fuzzy and unquantifiable. Feeling that someone “has your back” is undoubtedly a vibe, rather than something that can be easily measured.
That’s why it is so important to have a financial plan in place. Not having one means that you are driving a car, at night, without the lights on. You have no idea whether you are heading in the right direction.
By having a sensible, well thought through plan you not only get the comfort of seeing the road ahead but also, there is an unequivocal measure of successful progress.
If any of my fellow pros think I have missed out any good questions for a first meeting, then please do drop them in the comments.
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