How to Get the Best Out of Your Financial Advisor

Three essential boxes which you need to tick when taking financial advice – and no-nos you should never hear your advisor say

Ali Masarwah 8 April, 2021 | 4:38AM

Woman with checklist

Financial advisors come in all shapes and sizes, but commonalities remain. When performing their due diligence on the advisor of choice, investors should check three boxes to decide on the suitability of the candidates on their shortlist.

How Broad Is The Tool Kit Of The Advisor?
Investors need to make sure that their advisor is broadly positioned. This is by no means limited to the products he has on offer. Independent advisors must provide a overview of a meaningful, representative part of the product landscape, be it mutual funds or insurance policies. Dependent advisors will only offer investors the products that their organisation makes available to them. This, for one, makes a big difference. 

But the question on the tool kit goes far beyond that. Advisors need to take a holistic view of the client's financial situation. What are the client’s assets? What are his liabilities? What is his tax situation? What are his goals and how can he best achieve them? Although these questions sound trivial, reality often shows that many advisors simply don’t get it right.

(While unlucky investors can still come upon a single-fund peddling sales guy, these relicts from the 1990s are, happily, a dying breed.)

Mystery shopping tests show time and again that very many advisors fail to recognise deliberately hidden gaps in the test client's financial itinerary. This means that in practice the advice given does not meet many client's requirements because the coverage is incomplete from the start.

In case of doubt, clients have to engage in a kind of shadow accounting, i.e. they need to get a clear picture of their own personal financial situation before they seek the advice of their financial planner. 

Clear Language Instead of Pseudo-Jargon
It may well be that some investors will happily engage with their advisor about the details of a long straddle options strategy. But that is the exception. Most investors are not financial experts, and they have a right to understand what their trusted advisor is trying to tell (and sell) them. (By the way, qualified advisors aspire to communicate with their clients in an understandable way – explaining in a clear language the big picture as well as the details of a pension strategy!) 

Investors need to sound the alarm if an advisor hides behind complicated-sounding technical terms. Putting an information asymmetry on display is typically done to hide dishonest intentions. The client is to be belittled, and those who allow themselves to be belittled do not dare to ask the obvious: How much does the product cost? What is the best-case scenario? How does it work? What could go wrong? If a salesperson starts in engaging you with technical jargon, you should end the conversation quickly.

A Steady Hand Instead of a Last-Call Mentality
Of course, it is always better to have started investing yesterday. The longer an investor ties up his capital, the longer it can work for him and unfold the magic of the compound interest effect. But that doesn't mean the investor should be rushed or pressured into signing a long-term pension contract.

It is a typical salesman's ploy to suggest artificial scarcity, such as: "This offer is only valid this week!". This is very much in line with the scam many banks still engage in. In one week, clients are offered life insurance products, in the next real estate funds are pushed into the portfolios of unsuspecting investors. There is absolutely no need to respond to such last-call pitches. Serious advisors will never create the impression that the well-being of a client hinges on making a decision here and now.

To complement these three essential boxes investors need to tick, here are three things no reputable adviser would ever say. If you hear even one of them, you should leave the room immediately!

"Your Portfolio is total rubbish – we need to do a reset now!”

"This is a limited offer I only reserve for my very best clients!”

“The costs really don’t matter – the return is the only thing that counts!”

About Author

Ali Masarwah

Ali Masarwah  Ali Masarwah ist als Chefredakteur für die deutschsprachigen Anleger Websites von Morningstar verantwortlich.

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