Questions to Ask your Financial Advisor

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.