Questions to ask your financial advisor!

All great relationships begin with trust and understanding. This applies in both personal and professional situations. Choosing a financial advisor for investment guidance should also adhere to this principle. The investor/advisor relationship should be one where the investor trusts the expertise and integrity of the advisor and the advisor should understand the goals and risk-profile of the investor. This will allow for a mutually beneficial relationship.

For anyone seeking investment advice, there are some key questions you should ask which can help you in determining if a financial advisor is right for you:

• What are the fees & commissions charged and how does the advisor get compensated for the sale?

It is important that there is transparency in the fees charged and how the advisor is compensated. A good advisor will explain these clearly and the transparency will ensure no hidden motives for the recommendations made. Make sure you understand whether the investment has any upfront fees, management fees, broker commissions or annual fees. This will also help in comparing fee structures across brokers and against other advisors.

• How often does the advisor monitor investment recommendations?

As market conditions change continually, it is important to have an advisor who continually monitors the investment and can keep you up to date on current happenings. Having current and accurate information will allow you to minimize the possibility of losses and allow you to capitalize on opportunities.

• What are my other options?

A good advisor will provide multiple investment options to help determine which best benefits the investor. This will also allow the investor to understand that the advisor is not focused on pushing a product and just trying to make the sale. Having a variety of options available for the investor allows for you to meet your needs more precisely.

• Can I contact you whenever I have a question?

A good financial advisor is one who you can have constant communication with. The relationship between advisor and client should be one of open and easy communication. A simple thing as having a cell phone number for your advisor can make communication in the relationship seamless. Open lines of communication will allow for information to be shared easily and decisions to be made in a timely manner.

What are the red flags to avoid? 

• Hesitance in explaining fees and commissions: Not knowing all fees and commissions when investing, could impact your expected returns. Knowing these upfront and factoring them into the equation will give a realistic projection of returns and lead to better decision making by the investor.

• Not qualified or registered: Ensure that you are taking advise from a qualified and registered financial advisor. Do background checks to determine educational qualification and to find out if the person is registered by the local regulatory bodies to give financial advice.

• Focusing on your fears or buying pressure: Investment advice should be given with the sole focus of achieving the investor’s goals. If the sales pitch is aimed at playing on your fears or promotes buying pressure, then you should be cautious. This could be the advisor’s way of pushing a product rather than assisting you to achieve your goals.

• Sounding too good to be true: If it sounds too good to be true, then be very cautious. Many investors get into investments based on the promise of high returns which never materialize and without understanding the risks. Do your research so that you can understand the investment and determine if the promised return is realistic.

Always seek advice from a qualified, licensed financial advisor who you trust after asking the relevant questions.

Dwayne Neil, MBA, is the AVP, Personal Financial Planning at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual, and institutional investor.

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