What do you feel when you hear the term ‘financial planning’? Excited about tackling the next stages of your life with confidence or apprehensive perhaps because you may find out things you didn’t want to know?
When dealing with unfamiliar subjects many individuals reach for a reference guide, often Google! Our experience is that with as individual and important an issue as financial security and independence there can be no ‘off-the-shelf’ instruction manual.
As a result, financial strategies may often be developed and based on fear, misinformation from sales agents or ignorance, which rarely leads to any positive outcomes. As a result people are left feeling very frustrated, short-changed and fearful about their long-term financial security.
Our view is that no one knows as much as you about your finances as you do. As such you need to be the Chief Executive of your own financial destiny and a financial adviser should act as your Chief Financial Officer, using their professional knowledge to help to inform, advise and guide you to develop your own financial road map based on your specific situation, attitude to different risk levels, your objectives and your adviser’s understanding of taxation, budgeting, investment skills, forecasting, product types/availability and financial planning.
When selecting an adviser our advice is to:
1. Check the regulatory status of the company in great detail.
In our experience, many international ‘IFAs’ are only licensed for basic insurance services, often operating well outside their scope of authorisation while some are not regulated at all. It is always worth checking and indeed double-checking the exact categories of business that firms are licensed to conduct and should there be any doubt at all, AES International will be able to clarify the position.
2. Ask what regulatory protection (if any) applies to the advice.
Sometimes, the advice you receive is simply outside the scope of regulation. Even when advice isn’t regulated, the products you choose might afford you some type of protection. It is important to understand which regimes and systems are in place to protect you and what recourse you have for complaint in the future if your expectations are not met. AES London can always offer guidance of the protection offered for any retail client.
3. Ask what qualifications your adviser possesses?
Educational qualifications are very important because they denote that the person has undergone training in his field and is therefore professionally qualified to give you financial advice. Some post–nominal initials, the letters placed after a person’s name, denote little more than the completion of a very basic multiple choice paper while others equate to degree level qualifications. AES London is happy to explain which qualifications a retail client should reasonably expect of their adviser for different lines of business without charge.
4. Ask what kind of financial services are being offered?
Which financial areas does your selected firm generally cover? These vary from adviser to adviser, depending on their educational qualifications, work credentials, work license, and financial knowledge. Some firms only mediate insurance policies which may not always be the most cost-effective way for clients to invest. Others firms provide differing forms of investment service or focus on mortgages, equity release, international tax planning or foreign exchange.
5. Ask what work experience the adviser has?
How many years have they been in business? Ideally the financial adviser should have been in the business at least five years. It is also important to know which areas of financial planning an adviser is competent and experienced to provide advice upon.
6. Ask how many clients does the adviser have?
There should be enough clients to suggest experience and respectability, and not so many as to indicate a lack of time to attend to your needs.
7. Ask what kind of clients the adviser has?
If there are other clients like you, the financial adviser will be better equipped to deal with your kind of financial situation.
8. Ask who will be working with you to deliver the financial outcomes you expect?
Most financial advisers have a fair-sized staff made up of researchers and administrators to assist with the work, so knowing who you are going to be dealing with on an on-going basis is important.
9. Ask if they can you give you some references?
The financial adviser should give you at least three references. References should be from clients or independent professional colleagues within the finance field. After you have been given a list of references, make sure you call them. Ask the clients about their experience with this financial adviser. Find out from the colleagues what kind of professional standing the person has in his or her field. Time spent in some basic due diligence is seldom wasted.
10. Do you have clear terms of business and have you thoroughly read and understood them?
All professional firms will provide you with terms of business at the outset of any potential relationship. These are sometimes known as an initial disclosure document and should clearly set out the nature of your relationship. Once having read these, ask your adviser to explain anything which is unclear.
11. How much will you be charged for their services?
How is the adviser going to be paid for their services to you? Some financial advisers charge fees by the hour or take a flat fee. Some take fees as well as a percentage of your total income whereas others take fees and a commission for the financial products that they recommend you to buy.
If the financial adviser works for a financial firm, you pay the firm and they will pay his or her salary. In any case, at the start, ask for an estimate of the total costs involved. It is worth understanding that financial advice is never free but promises in this regard may indicate your adviser is receiving commission. Commission is paid from the charges within the product or fund to the financial adviser’s business and in many jurisdictions around the world is not explicitly disclosed. These charges are listed in key facts documents or product brochures and can reduce the return on any investment and it is therefore absolutely key that you clearly understand them and their effect before signing any applications. The respective benefits of fees versus commission are discussed in other AES International articles and clients should be aware that most professional firms will offer you the option to choose which payment method suits you best.
12. Ask if the adviser consults with outside parties and ask how often?
Finance is a vast and complicated field and it is not possible for any one person, however talented and exceptional, to handle all the business aspects personally. A good international financial adviser will undoubtedly refer to other professionals like cross-border lawyers, offshore bankers, international mortgage brokers, multi-jurisdictional accountants, and others. The best advisers often belong to larger networks that deliver an array of specialised and technical services that could be of benefit to their clients. If these people are going to be involved in handling your financial affairs you should clearly know who they might be and the credentials of the organisations which they represent.
13. What does the adviser do to keep abreast of current affairs in the financial field?
The finance field is in a constant state of flux and if you are to receive creditable advice about your investments, the financial adviser needs to have current, up-to-date information. How do they go about getting this? Do they take refresher courses? Are they going to pass this information on to you at regular intervals so you have background information on advice?
Many financial advisers are little more than glorified personal shoppers, flitting here and there to find off-the-shelf financial products to sell to you. In some cases this may be exactly what you want but in other cases you may want to benefit from an adviser’s trade discounts or have a detailed financial plan created with coherent objectives and cash flow planning. The key is to make sure that both the expertise and service you expect is actually delivered and right for you.
Always clarify anything that you don’t understand, make a note of all other things you would like to know and don’t hesitate to ask. If the adviser isn’t forthcoming, please contact our AES team in London who will research the adviser and their firm on your behalf at firstname.lastname@example.org.