Ques­tions to Ask your Fi­nan­cial Ad­vi­sor

Premier Magazine (South AFrica) - - Contents - Text: Gavin Smith, Head of Africa at de­vere Acuma Im­age © istockphoto.com

Fi­nan­cial ad­vi­sors are there to help you make the cor­rect fi­nan­cial de­ci­sions. Yet, many peo­ple find it dif­fi­cult to ask them ques­tions as they are of­ten not fa­mil­iar with fi­nan­cial jar­gon and their ad­vi­sors present them with a wad of doc­u­ments many do not fully un­der­stand.

Here are five ques­tions you should be ask­ing your fi­nan­cial ad­vi­sor:

How am I do­ing fi­nan­cially, and should I be wor­ried?

The pri­mary role of a fi­nan­cial ad­vi­sor is to make sure your money is pre­served (at the very least) and that it grows in line with your fi­nan­cial, sav­ing, and in­vest­ment plans.

The first thing your fi­nan­cial ad­vi­sor needs to show you is whether this has hap­pened. You should ask to be pre­sented with a de­tailed ac­count not only of the to­tal in­vest­ments and sav­ings amounts, but also of how each el­e­ment of your port­fo­lio has per­formed. In ad­di­tion, they should be able to eval­u­ate all of your other fi­nan­cial poli­cies, such as your life in­sur­ance, that you may have in place.

You should be able to see whether your cash, shares, prop­erty, or re­tire­ment an­nu­ities have per­formed well rel­a­tive to your ex­pec­ta­tions and to peer av­er­ages, and, if there is, you need to ques­tion why there is un­der­per­for­mance and how this will be rec­ti­fied. You should also be able to get a bet­ter un­der­stand­ing whether you are fully pro­tected in the event that some­thing un­ex­pected hap­pens.

Most of all, you need to know if all of this means you should be wor­ried, and whether you are on track to meet your fi­nan­cial goals, or whether you need to ad­just your ex­pec­ta­tions or change your plans.

What risks am I tak­ing?

You and your ad­vi­sor would have ini­ti­ated your re­la­tion­ship based on an un­der­stand­ing of your risk ap­petite, which would be fac­tored into your plan.

This needs to be con­stantly re-ex­am­ined and it is up to your fi­nan­cial ad­vi­sor to spot any new or in­creased risks in your life that could im­pact your fi­nan­cial plans, in­vest­ments, and poli­cies.

For ex­am­ple, a rand hedge-bi­ased port­fo­lio may have been con­sid­ered low risk some two years ago, but the re­cent strength of the rand was an un­ex­pected risk which re­sulted in you tak­ing on a risk than you did not sign up for. Equally, if you are in­vested in a par­tic­u­lar re­gion which was con­sid­ered a safe bet but is now fraught with is­sues, your low risk op­tion has be­come high risk. If your in­vest­ment has done well or you have come into some ad­di­tional funds, you may feel you are in a po­si­tion to take on more risk than be­fore.

How have you adapted your fi­nan­cial strat­egy to re­act to ex­ter­nal changes?

If your ad­vi­sor tells you this is a longterm game and noth­ing has changed or needs to change, it may be time to ask the hard ques­tions about whether they are fully tak­ing into ac­count the short-, medium-, and long-term risks that could have an im­pact on all of your in­vest­ments and fi­nan­cial poli­cies.

While it has been proven that a long term strat­egy works, and that mak­ing im­pul­sive changes in re­ac­tion to cur­rent events is gen­er­ally not a good idea, it is crit­i­cal that your in­vest­ment ad­vi­sor ex­plains what re­cent global and lo­cal events mean for your fi­nan­cial plan­ning. Also whether th­ese events have been care­fully con­sid­ered in re­la­tion to your in­vest­ments and poli­cies.

Your ad­vi­sor needs to ex­plain what a Don­ald Trump pres­i­dency, Brexit, low South African eco­nomic growth rate, pos­si­ble rat­ings down­grade, or ris­ing or fall­ing com­mod­ity prices mean for your sav­ings and in­vest­ments, and how th­ese un­cer­tain­ties are fac­tored into their strat­egy, or whether any of th­ese events re­quire a re­ac­tion.

Ob­vi­ously you can­not ex­pect them to ac­cu­rately pre­dict the fu­ture, but you can ex­pect them to have done some sce­nario plan­ning and worked this into their fi­nan­cial strat­egy.

At the very least, they need to show you how your port­fo­lio of­fers you the max­i­mum pro­tec­tion against volatility if you are a low risk in­vestor, or how your port­fo­lio is struc­tured to take ad­van­tage of the volatility if you have a greater risk tol­er­ance.

What are you do­ing to take my per­sonal needs into ac­count?

Fi­nan­cial ad­vi­sors may be quick to sell you a plan that works for the ma­jor­ity of their clients. The whole point of en­list­ing an ad­vi­sor, how­ever, is to get ad­vice that is spe­cific to you.

Has your ad­vi­sor asked you if any­thing in your life has changed or is ex­pected to change? Get­ting mar­ried or di­vorced, chang­ing or los­ing your job, or hav­ing to step in to care for a fam­ily mem­ber will sig­nif­i­cantly al­ter your fi­nan­cial sit­u­a­tion and fu­ture needs and re­sources.

If you lay out your pri­or­i­ties, your ad­vi­sor needs to fine tune your fi­nan­cial port­fo­lio as those pri­or­i­ties change, whether it is chang­ing your in­vest­ments, in­creas­ing your life cover, or even tak­ing out an ed­u­ca­tion pol­icy for a lit­tle one on the way.

What changes do we need to make right now?

Fi­nan­cial plan­ning may be a con­tin­u­ous and long term process, but if there are any changes in your cir­cum­stances, th­ese may re­quire im­me­di­ate ad­just­ments to your fi­nan­cial port­fo­lio and your ad­vi­sor should act rather than ad­vise you to carry on as be­fore.

If your ad­vi­sor in­di­cates that no changes are re­quired de­spite th­ese new cir­cum­stances, you need to be as­sured that you are cor­rect in stick­ing to your guns.

Your in­vest­ments have a huge im­pact on your life. You and your fi­nan­cial ad­vi­sor should al­ways be on the same page; use th­ese five ques­tions to de­ter­mine whether this is in­deed the case.

You should be able to see whether your cash, shares, prop­erty, or re­tire­ment an­nu­ities have per­formed well rel­a­tive to your ex­pec­ta­tions and to peer av­er­ages, and, if there is, you need to ques­tion why there is un­der­per­for­mance and how this will be rec­ti­fied.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.