It's important to feel confident about the investment advice you receive. Take a look at some useful questions to ask a financial adviser.

Questions to ask an adviser

Here when it matters: the value of advice

For many people, getting the right financial advice can be the difference between achieving your investment goals or not.

Whether you are saver or an investor, the credit crunch means that you are likely to be more aware of the types of solutions that are going to work best for you and  want to know more about them. A trip into the world of investments, however, can be a bewildering experience. There are OEICs, unit trusts, ISAs, structured products, with-profits bondWith profits bond/ policyA single premium bond issued by a life company where a lump sum is paid into a with profits fund made up of shares, property, cash and fixed interest securities. With profits bonds use a smoothing device to protect the investor from extreme fluctuations in market conditions. and much more besides.

Figuring out what all these different terms mean and what investments might be appropriate for your circumstances is not an impossible task – provided you have the grit and determination needed to spend the hours doing the necessary research, sifting through the literally thousands of choices available to you.

Many decide it’s easier to simply buy investment products from their bank or building society. But an increasing number of people are recognising that the best way to plan for their financial future is to use an independent financial adviser.

Skandia CEO, Peter Mann, says: “Independent research from the Financial Services Research Forum at Nottingham University Business School has consistently found that independent financial advisers enjoy by far the highest ratings on overall trust and fairness among consumers. IFAs come out well above building societies, investment companies, life insurers and banks.

“Not only is the profession the most trusted, but it is also regarded as the most fair – this is no mean feat given the economic conditions over recent years.”

Forward planning

While many consumers are more financially sophisticated than they used to be and the internet has made researching products much easier, an IFA will start from a very different place. Rather than trying to find the best financial product, it is incumbent upon them to do what is best for their clients – so they start with a thorough review of a client’s current investments and their requirements.

Once the initial strategies are in place, it’s important that clients review their position regularly.

Adrian Lowcock, Senior Investment Adviser at Bestinvest, says: “We tell our clients they should review their financial situation at least every 12 months, and investments should be reviewed at every valuation, which should be at least every six months.”

A good relationship with an IFA should last for many years, even for a lifetime. As we all know, our financial requirements can change over time. As Adrian Cleator of Gee & Watson, says: “Typically, clients with a young family will initially want to provide protection for their family. Then, as they grow older and wealthier, the emphasis might shift to ensuring that they have provided for their retirement and inheritance.”

This may be “Financial Planning 101”, but even with the best long-term planning, there can be shocks and surprises along the way, as the global financial crisis so clearly illustrated. It’s during times such as these that an IFA can be worth his or her weight in gold. Not only are they there to provide reassurance, but an IFA can make sure that you make the correct choices.

Minimising risk

Research into behavioural finance – the study of how human behaviour affects investment decisions and market performance – shows, for example, that investment bubbles have both a rational and irrational side to them.

Professor Mark Fenton-O’Creevy, an organisational behaviour specialist at the Open University, explains: “In a risky and uncertain world, we are always looking for the safe option. For example, a crowd will tend to run away from danger rather than run towards it, so following the crowd is usually the best course of action if you want to survive.

Once the initial strategies are in place, clients should review their position regularly

“But while this kind of behaviour is rational in the face of a very real and immediate danger such as a bear attack, it is often irrational when making investment decisions.”

As Adrian Lowcock points out: “Even professional investors don’t get it right all the time. But having an IFA who can frequently review your portfolio and make sure that it meets all your investment objectives, should help you avoid any investment mistakes. An IFA will also help you avoid another frequent investment pitfall – putting all your eggs in one basket.”

But it is important to point out that financial advisers are not perfect – they will make recommendations based on a client’s needs and circumstances, but they can’t control the markets, which may perform badly. That’s why assessing risk is an adviser’s key role.

The risks involved in investing can never be understated, particularly in light of recent years. Determining a new client’s attitude towards risk is an essential part of the process of shaping a client’s investment portfolio. As Adrian Cleator says: “We need to ensure that the money is invested in line with an individual’s attitude towards risk.”

Cleator uses a questionnaire provided by Skandia called the Risk Profiler. “It is a very useful instrument,” he says. “Not only does it help us to determine an individual’s attitude towards risk, but it often stimulates an interesting conversation which helps us to better understand that individual’s objectives and expectations.”

Changing landscape

Consumers should pay careful attention to what fees they are paying, what advice they receive and whether those fees are justified. Lowcock says: “Fee-based advisers only get repeat business if the client is happy with the advice.”

Sometimes the advantage of paying a fee to a financial adviser may not be immediately obvious. “It may well be the case that the client pays a fee to the adviser only to find that the best thing they can do is nothing at all,” says Peter Mann. “But it is still better to have professional advice and have the reassurance that your plan is on track, rather than have no advice at all.”

Case study: riding out the storm

Alan and Mary Jenkins from Bristol have recently come to realise the value of having a financial adviser who can not only help with ongoing planning, but who can make adjustments in times of crisis to help make sure that long-term goals stay on track.

“David has been our adviser for nearly 15 years, so he has got to know us very well,” says Alan. “And I don’t know where we would be without his help. For instance, years ago we took out a with-profits bond. At the time, it was the right thing for us, but at a recent review David realised that it just wasn’t suitable for us anymore.”
“Because we are nearing retirement, a lot of our money is in safer investments. But we were still concerned that we were going to lose out and have to put our retirement back. David was able to explain to us that by moving a few of our investments we should be able to retire as planned, and that the remaining investments will likely get back what we lost over time.

“It was a massive reassurance to know that by acting decisively we will still be able to get the retirement we have been planning for all these years.”

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