I’m sure you take your health seriously as many of us would like to live in good health for as long as possible. It is amazing how well informed most people are about their health. Many people consider expert opinion on your diet or any medical course of treatment. Yet many don’t take the same approach to financial advice. What would living longer help, if through poor advice you fail to achieve the means to fund your longevity?
Do not let all the good decisions you have made in your life’s work be undone by a poor choice of financial advisor. Other than your health the next most important decision you will make will be about your wealth.
When selecting a financial advisor there are two critical decisions you need to make.
The first decision is a personal one. This is vitally important as you need to be sure that in the unfortunate event of your death your advisor will have your family’s best interests at heart. The other component of this is that if you don’t have trust or faith in your advisor and their capabilities then the likelihood of you taking their advice may be slim. This is more of a problem than most think, as clients are often more destructive to their investment outcomes than markets are.
Good relationships and trust are critical and ignoring the soft issues can be expensive in the long run. In difficult markets you are likely to have anxiety but knowing and trusting your advisor to make the right decisions will prevent you from making rash decisions based on fear. We observe this often when things get difficult and have seen some disasters when clients lose faith and panic sell. You wouldn’t go to just any doctor so don’t go to just any advisor.
The second decision is around expertise – an advisor’s capabilities are linked to their ability to build trust.
It is important to understand the advisors license categories. Having limited categories limits your exposure to the products available in the market. Your advisor should have sufficient qualifications and experience to provide you with the best possible outcomes.
This involves staying up to date with products and constantly researching options that can result in better outcomes for the client.
The investment universe has moved on from just share portfolios and unit trusts. Today you have options like indexation, structured products and notes which are growing at the expense of the unit trust industry. In addition, there are many new offshore investment options as well as offshore structuring for direct offshore clients that has seen significant growth of late. It is critical that a doctor stays up to date with the latest information to give their patients the best outcomes, it is as critical that advisors do the same.
In light of stories involving bad advice some believe it is better to go it alone. This is possible if you have the time and networks to keep abreast of developments in the industry and have access to all the products.
The benefits of advice according to the Dalbar Study was a 4% improvement in outcomes on average when advised.
Add to this the cost benefits of scale an advice firm receives and passes on to the clients, and often the advice fee of 0.50% p.a. more than pays for itself.