The right questions to ask your financial adviser

 

There is always an eagerness on the part of clients and prospective clients to learn more about investments, how markets work, and the differences between various investment products. As a financial adviser the first question that is usually asked by potential clients in our introductory meeting is “should I invest in shares, unit trusts, or ETFs?”

 

This is not the most important question you should be asking in that first meeting. In that first meeting you need to be asking questions of me as an investment adviser, what experience do I have in managing clients’ money? What qualifications do I have? What is my track record? What does my client profile look like? Do I have the required license to offer the service they need? How do I charge for my services? What is my investment philosophy? Am I a Certified Financial Planner®?

 

The difference between investment products should really be a question asked of the adviser you eventually do appoint. The problem with asking this question upfront is that the person could be so impressed with the way the adviser answers them that they decide to do business with him/her. They then miss that he is not suitably qualified, experienced, licensed, or capable. By asking the wrong question the investor has inadvertently opened the door for the adviser to do a sales pitch on them.

 

It is understandable that investors may be uncertain about the type of questions that they need to ask. Financial services can be intimidating for the layperson, who often has no idea where to start looking for assistance, or what it is that they need in the first place. The industry has also not covered itself in glory, leaving many a well-intentioned retiree facing a bleak retirement because of the expensive cost structure of the RA they took out 30 years ago. Things have improved in the past decade, but there is still a lot of work to be done to improve matters.

 

How to ask better questions when it comes to investing and financial services

A starting point for investors is to realise that the power dynamics are in their favour. The financial services sector is here to serve the client. When people understand that they hold the power in the relationship they have with financial service and product providers, they will enter into conversations with a very different mind-set, and the line of questioning should improve.

When a client says to themselves ‘what is it that I need as an investor?”, then developing the appropriate line of questioning becomes a lot easier.

Typically the conversation they would have with themselves would go as follows:

  • I have money to invest, can I do this myself?
  • If no, do I need advice?
  • What should I look for in an adviser?
  • Once I have appointed an adviser, what do I want to achieve and by when?
  • How much am I prepared to pay for this?

Investors should be prepared to interrogate the answers that they get. A good approach is to start off with broad, open-ended questions that get the adviser talking. From there the investor can move to more specific questions. It is important that the investor control that initial meeting. A product salesperson is likely to feel very uncomfortable by all the questioning, so the investor should look out for signs of discomfort. That is the reason the salesperson will likely open the meeting with a question like “How can I help you?” or “what is it that you are looking for?” – that way they can bypass the due diligence process and move swiftly to the point where they can start the well-rehearsed sales pitch.