It’s that time of the year when everyone takes stock of what they should have done in the last year and what they really should do in the coming year. Financial Planning is a subject that gets addressed more at this time of the year than any other mainly because of the tendency to “I better do this otherwise I’ll never get around to it”. Once January passes however, the mental incentive does as well. So if you are really going to get stuck into this area now, here are eleven questions to ask either your current or prospective financial adviser:
1. Are you a fiduciary?
The term “fiduciary” is not one that Irish people are used to hearing, unless of course you have a legal background. Normally it’s applied to a professional adviser who places the client’s interest ahead of their own. Fiduciaries must also disclose what their fees are, how they’re compensated and any other conflicts or potential conflicts of interest that might influence an individual’s decision to use their services.
In contrast, non-fiduciary financial advisors might receive a commission in exchange for selling you a particular investment that isn’t the best for you – and not tell you how they’ve profited from it. Under Irish financial services legislation full disclosure is required but in my experience many advisers tend to fudge the issue partly because they may feel that they may not be providing good client value.
2. What products do they advise on and how do they charge for their services, and for how much?
If you didn’t see this information on the financial adviser’s web site, ask whether there’s an initial advisory fee, whether they charge a percentage for assets under management, or whether they make money from selling you a specific product. Not only should you know how much the service will cost you, but it can help you determine whether they have an incentive to sell you things.
Under the Consumer Protection Code all adviser should offer you the choice of being remunerated by way of fee or commission from a product. Those that do not offer a choice are most likely tied to a financial institution and so their advice may possibly be biased. If an adviser seeks payment only from commission then you might want to obtain substantial information on why one product might be recommended over another.
If an adviser is specifically promoting a particular product or investment fund it is most likely that they have a vested interest either by way of a shareholding in the fund or a very high rate of commission payment or an associated party is also engaged professionally. This is typically the case with many energy based projects who may actually be promoting non recourse loans that may be unsecured against any assets. The type of product that these latter “advisers” sell are sometimes unregulated and are not covered by the Investor Compensation Company Lmited (ICCL) protection scheme.
3. Do they have a speciality and how do they work?
Implicit in this question is what assistance the advisor will not give you. Some advisers will only set themselves out to be investment product sales based even though they may refer to themselves as investment or wealth managers. Others may market themselves as pension specialists. The real skill in financial advice comes in matching up investment, insurance, retirement planning, estate planning and tax planning. Ask the adviser whether they engage in a financial planning approach by producing Personal Worth Statements, outline tax computations and lifetime cashflow analysis? If not, why not? The better advisers will look to use every piece of financial information that you give them to build up a foundation picture of you before proceeding to advise you.
Many advisors tend to focus on people within 10 years of their own age but this should not be seen as a restriction provided their skill set is adequate. The advantage of some specialists is that they may have a common interest and experiences that they can share with their clients.
4. Are they authorised by the Central Bank of Ireland?
The best way to find this out is to check the specific business name and its specific address on the Regulators website which can be accessed at http://registers.centralbank.ie/ .
If you are at all concerned about the party that may be offering you advice at the moment and cannot find them on the Central Bank’s main registers you can check out the Regulator’s “Unauthorised Firms List” to make sure that your potential adviser is not listed there either.
http://www.centralbank.ie/regulation/unauthorised-firms/Pages/list-search-unath.aspx. Unauthorised Firms are most likely highly suspect and should be avoided at all costs. If you cannot find any reference to the advisor on any of the list, stop dealing with them immediately as otherwise you are most likely dealing with a scam artist!
5. How qualified are they to give financial and investment advice?
While it is preferable for a financial adviser to have a minimum standard of the Qualified Financial Advisor (QFA) quite a large number of advisers in Ireland do not actually hold this qualification. This is because their representative body have lobbied successfully for those with long service in the industry to obtain an exemption even though they are still obliged to attend minimum competency update sessions.
Nowadays, however, there are a small but growing number of accredited Certified Financial Planners™ and Chartered Financial Planners who have upskilled considerably their own technical and professional skills far beyond the QFA level. This list can be viewed at
In this regard you might like to know that in 2013 The Society of Financial Planners of Ireland was formed specifically to raise the professional standards of personal financial advice in Ireland. The members of this organisation who are allowed to appear on their public register hold the qualification of Certified Financial Planner™ and are capable of producing very detailed financial analysis such as the aforementioned Personal Worth Statements and Lifetime Cashflow Analysis.
Furthermore they are more likely to deal with exploring personal needs and will challenge you on issues such as Wills, Enduring Power of Attorney and Personal Taxation matters. It’s not that they are specialists in these latter areas (but some are) but it is primarily because they have a broad enough approach to know that the most important issue is the needs of the potential client rather than the shoehorning of a particular financial product to a potential sales target.
6. Could I see a sample financial plan?
There is no standard financial plan but getting a sample will give you an understanding of not only their approach but their standard of technical competence. Some advisers may provide a lot of detail in their reports which may not be to the preference of some clients while others might cut to the chase, which means there is wide variation. By seeing a sample, you can say, ‘I really want that in-depth analysis,’ or ‘I don’t understand that.’
7. Which financial institutions do you deal with on a regular basis and why?
A good financial advisor should have agencies with or at least be able to form an opinion on particular insurers, banks, investment companies and other providers as well. They should also be able to offer basic advice on the full range of investment, pension, protection, mortgage and deposit account products.
8. What is your investment approach?
If you have a strong preference for a particular philosophy, ask the adviser what his or hers is. For instance, you can ask whether they plan to use actively managed funds or passive investments. The difference in approach can mean either an emphasis on fund manager picking which is always very difficult or by using a low cost index fund.
9. How much contact do you have with your clients?
Surveys have found that where financial clients had 12 or more contacts from their adviser in a year, they have had the highest rates of satisfaction with their advisers. Find out how many meetings, phone calls, portfolio updates, client seminars and ezine or newsletter activities the adviser uses to keep in touch with their clients.
10. Will I be working with you or with a team?
Some advisory businesses have a team approach rather than an individual approach but it is fair to say that one isn’t necessarily better than the other – it really depends on what your personal preference is.
11. What makes your client experience unique?
In short, “why would I appoint you as my adviser?”. This should not be a throw away question and you should not get a throw away answer. This is a key question that needs to be really focussed on and will give you a better insight into the way the adviser thinks. Is the adviser more style than substance? Quite often your gut instinct will be right in assessing the answer to this question.