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The 10 best questions you should ask your financial adviser
Tuesday 4th May, 2021
Knowing what questions to ask a financial adviser will save you time, effort, and money. To help you find the right adviser - and avoid hiring the wrong one - here are the 10 most important questions I think you should be asking.
Question 1: How do you charge and how much am I likely to pay?
A financial adviser must be able to tell you how they charge before they take you on as a client. They also need to give you an idea of what the cost will be.
Some financial advisers charge by the hour, while others may have a menu of fixed fees, or charge a percentage of the funds you are asking them to look after or invest. The adviser might not be able to tell you exactly what you’ll pay, but they should be able to give you an indication and perhaps even an upper limit.
Understanding how your adviser charges and how much the fees are likely to be is crucially important. Firstly, the amount you are paying for your advice can dramatically impact your returns. Secondly, your relationship with your financial adviser can last many years, so you want to be sure that you are comfortable with the level of fees and the way they are charged. Remember, you wouldn’t order a meal from a menu with no prices written on it, so don’t accept not knowing the fees when choosing a financial adviser.
Most financial advisers will have fee agreement for you to sign, which should explicitly explain all their fees and how they will be taken, as well as explaining how you can end the relationship.
Question 2: What services do you offer?
Financial advisers must be able to tell you what services they offer. Asking the adviser this question will help you understand whether they are the right adviser for you. Financial advisers normally have some sort of document or private client agreement, which will provide details about the company and the services they offer.
The services that an adviser offers can vary significantly; from meeting very simple needs, such as investing in an ISA or taking out a life insurance policy, to holistic financial planning, where the adviser will consider all your investment needs and recommend a plan to help you meet your financial goals. It’s therefore important to know what it is you want from the relationship, so that you can choose a service that bests suits you.
For some specialised areas (such as transferring out from a defined benefit pension scheme) advisers may not have the necessary qualifications to provide all the advice you need.
If this is the case, they may outsource some of the advice to another firm. They should tell you if they operate on this basis and how they share information with other firms.
Question 3: Do you offer restricted or independent advice?
The phrase ‘independent financial adviser’ has a particular meaning that’s set out in the rules that financial advisers have to follow. To be called independent, a financial adviser must be able to offer a broad range of retail investment products and give consumers unbiased and unrestricted advice based on a comprehensive and fair analysis of the market.
An adviser might be what’s called ‘restricted’ if they only recommend certain types of investment products or products from a limited number of providers.
Now from my perspective, I believe it is the skills of the individual adviser that makes the most difference and not the tools. Whether an adviser is offering products from only one company or from the whole market, isn’t going to be the thing that makes or breaks your financial future, provided that the restricted range meets your requirements. If you are dealing with a restricted adviser, what really matters is that the adviser has the experience, knowledge and tools available to create the most effective plan. If you have a great rapport and level of trust with an adviser, don’t let the fact that they are restricted or independent affect your choice. If you buy into their proposition and are getting the correct financial advice, that is all that matters.
Restricted advice can be a problem if the limited range of products they advise on won’t be sufficient for your needs, so it is definitely important that you know whether someone is Independent or Restricted at the outset, so you understand exactly what their limitations are and what the nature of the proposition you are buying into is.
Question 4: Are you approved by the FCA?
This is an important question, as you want to know that the person you are dealing with is accountable to a regulator. If the person calls himself a financial adviser, but is not FCA approved, then just finish your coffee and Chelsea bun and leave their office.
It is always easy to double check an adviser’s credentials by looking on the FCA Register, where there will be details of the adviser’s approval, their firm and any complaints that have been upheld against them.
Question 5: What are your qualifications?
Advisers must have a minimum level 4 diploma in financial advice to practice. This is the bare minimum, with the gold standard being either the level 6 Chartered Financial Planner or Certified Financial Planner qualification. Anyone calling themselves an adviser, without proof of the minimum qualifications should be avoided at all costs.
Question 6: Will you give me ongoing advice and what will this cost?
Most financial advisers will offer an ongoing advice service.
Ongoing advice on your financial circumstances can provide real benefits over the longer term, but isn’t right for everybody. If you feel that you may benefit from this then it’s worth asking about it and finding out the likely costs.
It is important to note that you are under no obligation to accept an ongoing service. It is also wise to establish what the process is for ending the ongoing service if this becomes necessary. You want to be sure that there are no termination charges.
Question 7: Can the cost be deducted from my investment?
You will need to agree with the adviser whether you want to pay the fee directly or have it taken from your investment. Payment from the investment is more common, but does create a drag on your investment performance, particularly if you are paying for your ongoing service in this manner.
Question 8: How will you receive the service?
It is very important to establish how the adviser will provide you with the service. Will it be face to face, or will it all be by phone or digital meetings via Zoom? You need to establish right at the outset what your preference will be. The world has changed since COVID 19 and many advisers are showing a preference for digital meetings, so it is worth checking if you aren’t going to be comfortable with this approach. You also need to determine when you will receive valuations and, should you agree to the ongoing service, how often you will meet your adviser to review your portfolio and circumstances.
Question 9: What is your experience within the world of financial planning?
As we all know, qualifications are important. However, experience in dealing with a multitude of different clients and financial circumstances, where the adviser has been required to apply their knowledge is crucial. It is all very well knowing the theory, but if you have no clue how to put it into practice, you are about as useful as a chocolate teapot.
Therefore, when interviewing an adviser, it goes without saying that you want to know how long they’ve been working and what kind of experience they have.
However, experience is more than just the number of years they’ve worked in the profession.
What’s likely more important is the type of experience they have providing different services. Some examples include:
- Financial planning
- Pensions
- Tax planning and portfolio construction
- Retirement income
- Investment management
- Insurance optimization
- IHT and estate planning
It is therefore really worth asking your prospective adviser what experience they have and what they have really specialised in.
Question 10: How will I be able to view my investments/pensions and their performance on a regular basis?
It is important to understand what access you will have to your investments on a day-to-day basis. After all, you don’t want to have to phone your adviser every time you want an up-to-date valuation or to review your holdings.
Final thoughts...
Choosing a financial adviser can be one of the most important decisions you will make.
Working with the right adviser for your unique situation can be the difference between a carefree financial future and a stressful one.
When meeting with a financial adviser, don’t be afraid to ask tough questions. Like any other professional, they are there to serve the needs of their clients. A good adviser will welcome any and all questions you ask.