Questions to ask your Financial Advisor
This article delves into questions you should be asking your financial advisor. Whether you’re about to start speaking to an advisor or you are already working with one, it is absolutely imperative that they can provide satisfactory answers to these questions. We’ve explained why these questions are so important and then provided our own answers. Setting up our business was almost a case of considering these questions which represent what clients need and then endeavouring to provide the best possible solution to each one.
- Are you independent or tied?
Not sure what this means exactly? Well, to put it simply, an independent advisor works for their clients while a tied advisor works for an institution. As an example, a tied advisor will sell products from either one institution (or maybe a small handful) and receive remuneration from the product as a commission rather than from the client. An independent advisor will listen to what the client needs and then go out to the marketplace and source the best solution. In this case, their remuneration will be paid by the client meaning that their advice is not biased towards one institution or product.
To use an analogy, imagine you’re shopping for running shoes. If you visit the Nike Store, you’ll find a charming assistant who will be able to talk to you about their range of running shoes but nothing else (they’ll probably try to talk you into buying a few socks and other running gear also!). If you visit an independent running shoe specialist you’re more likely to find an expert who will pay more attention to your individual needs and then recommend the best pair of shoes for you. Those shoes might be a well-known brand that you’ve heard of like Nike or Adidas or they could be from a lesser known brand but what matters is that they’re the right shoes for you.
At Valiant Wealth, we are truly independent. We work for our clients and not for any institution. We do not earn commissions and have no interest in recommending one product over another as our remuneration is paid by our clients. No other institutions have any shares or stake in our company and nor do we hold shares in other institutions. We provide advice that is tailored to your individual needs and add value through the financial planning process and ongoing service that ensures continued suitability.
Furthermore, I also know a thing or two about running shoes.
- What can you advise on?
Financial advisors will typically specialise in different areas so it is important to have an idea of what you are looking for before you approach one. For example, some advisors will only provide advice on insurance products, mortgages, raising finance, tax planning etc.
If you have a very specific need then it is likely that a specialist will be best for you. If you are looking for overall financial advice that incorporates elements of all of the above then an independent financial advisor is the best place to start.
Many of our clients approach us initially with something specific in mind – for example, they might be looking for advice on an overseas pension, ways to improve their existing investments, options to save for the future or need to find ways to optimise their tax situation.
As independent advisors we can find solutions to all these things and more. Through our thorough planning process we ensure that the solution we recommend fits into a more holistic plan that considers all aspects of your financial picture as well as your personal circumstances in terms of work, family, nationality, retirement etc. – i.e. all the things that make you unique. As international financial advisors our clients come from a range of backgrounds and often have such unique circumstances that local advisors simply don’t have the skillset or resources to make adequate recommendations.
- How are you regulated?
If you’re dealing with an international financial advisor then this is a very important question that many clients overlook or do not realise the full importance of.
Freedom of services in the EU means that a company can be establish in one state and then ‘passport’ their services into other states. As a result, many companies set up in a country with more relaxed regulation in order to do business elsewhere. Financial advisories should also seek to be registered in other states where they do business but quite often simply don’t bother as the probability of any recourse from dealing with the relatively small population of expats quite slim.
Elsewhere in the world international financial advisors ‘trip in’ to countries where financial regulation is almost non-existent in order to deal with expats such as those working in the oil and gas industry or for the United Nations.
Regulation is important as it fundamentally affects the way a financial advisor will conduct themselves while doing business. Regulation covers a range of important matters which are relevant to the quality of advice a client can expect to receive. For example, regulation dictates the minimum standard of qualifications an advisor must have, the types of products they can give advice on, the level of professional indemnity insurance they need, the way they can charge clients/take commissions, the compliance process and transparency over fees, the kind of investments allowed and the rights a client has to make a complaint or seek compensation if they feel they were wrongly advised.
Consumers cannot really be expected to have a full understanding of regulation in different countries and will often simply put faith and trust in their advisor. The best firms will always have a high sense of ‘self-regulation’ and maintain high standards that put their clients’ needs first.
As a client, you should always ask your advisor to explain how there are regulated and what that regulation means. If something doesn’t smell right then it’s probably wise to walk away and find an advisor that can give you better assurances.
As a company we wanted to be able to provide our clients with the utmost peace of mind when it comes to regulation. For this reason, we are part of UK-regulated group which means we follow a strict compliance procedure and follow levels of transparency that are greater than elsewhere in the EU.
After the last financial crisis in 2008, the UK conducted a review of financial services (known as RDR – the Retail Distribution Review). The aim was to clean up the industry and ensure that companies act in a way that puts client prosperity first. A huge range of measures and rules were introduced all with the underpinning philosophy of “Treating Customers Fairly” (TCF).
Part of our UK regulation means that everything is disclosed and you can be certain that there are no hidden fees or exit penalties further down the road.
Some other advisors operate under a license to advise on insurance-based products which is more relaxed than the license for investment advice. They do this to then use insurance-based products as investment vehicles which pay generous commissions, have expensive fees and exit penalties and a rigid structure with a few tax benefits which are often unnecessary for the client or not significant enough to outweigh the extra cost of the structure.
We are regulated to advise on both insurance and investment based products. We use insurance structures when there are benefits to a client and it is the most suitable solution as determined by our financial planning process. However, in most cases a more straightforward platform for investments is the best solution to provide a flexible structure to save and invest.
- How do you get paid?
In a similar vein to the point above, one of the first things you should discuss with your advisor is fees and charges. You should never avoid this subject as the ‘elephant in the room’ and get it out in the open as soon as possible to be able to focus on the advice process.
Fundamentally, we all work for the hands that feed us. If an advisor tells you that their remuneration comes from the institutions and product providers they recommend then you must question whether that represents independent advice and whether that advice will be in your interest or the interest of the advisor.
The fairest way for an advisor to earn their remuneration is by fees paid by the client. This ensures that the advisor is working for the client and will only act with their interests at heart.
We welcome the conversation about fees with clients. We will always provide a free initial consultation and do not charge for the financial planning process or for making recommendations (there may be exceptions to this if we are asked to carry out an amount of work beyond what can be reasonably be expected but 99% of the time this is not the case). We charge a fee for the implementation of our recommendation and then an ongoing fee for service and continuity of advice. We will always agree on the fee with our clients as something that we both feel is fair for the amount of work involved and the level of value that we add.
- What will our ongoing relationship be like?
It is important that clients and advisors agree on the level of ongoing service so that your own expectations can be managed. It is human nature that some people are more demanding than others and it is up to the advisor to manage each client relationship in a way that is satisfactory to the client.
We take pride in our relationships with clients. We promise a minimum of two review meetings a year whereas many advisors will only conduct one a year. More importantly, our clients are aware that they can approach us at any time if they have any questions or something on their mind. We encourage a certain degree of autonomy and in the modern age, clients value being able to monitor their investments via an online platform rather than having to contact their advisor each time they want to check the performance.
- Can you provide any testimonials from clients similar to me?
Don’t be afraid to ask for testimonials or even for the opportunity to speak to an existing client. It helps if that client has a similar profile to you either by their age, demographic, occupation or according to the nature of the recommendation.
This is something we embrace as a company and can easily provide testimonials from satisfied clients.
- How can I know that my money is safe?
When we hand over our money to the bank we often take it for granted that the money will be safe without ever asking where the money goes or how it will be looked after. This is mostly due to the size of the institutions and the sense of security that gives us. When it comes dealing with advisors who are recommending products from unfamiliar institutions you should do your due diligence on where the money goes in order to understand the level of risk.
When we make recommendations we place the security of the money above all other priorities. We only work with institutions that can guarantee that your money is ringfenced and secure in the event of anything happening to the institution. Furthermore, we provide our clients with all the relevant paperwork to explain how their assets are secure to guarantee their peace of mind.
- Am I free to terminate our relationship or exit any products at any time or will there be penalties?
Quite often advisors and clients will only pay attention to the ‘here and now’ of their advice and not fully address what could happen in the future if any global events or changes to the client’s circumstances mean that the product or investments are no longer suitable and need to be changed.
Usually exit penalties exist when commission has been paid out by the product provider to the advisor and they need to reclaim it from the client. Under a transparent fee-based model this would not be the case and clients are free to exit one product and enter another without incurring a charge.
We are strictly opposed to the practice of placing handcuffs on clients when it comes to either working with us or staying with a specific product. Our clients are free to sack us and appoint another advisor (though thankfully none ever have!). More importantly, we only advise on products that do not involve exit penalties. If a client’s circumstances change or there is a significant global events we need to be reactive and can do so without any extra cost to the client.
Whether you’re already working with a financial advisor or not, we’d love to hear from you and discuss ways that we can add value to your financial situation. Please contact us via the form below and someone will be in touch.
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