Questions to ask your potential adviser

Questions to ask your potential adviser

Read Time: 6 minutes

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In these days when information can be retrieved from the internet at the click of a button, it is easy to assume that finding a financial adviser would be straightforward.  According to the Financial Conduct Authority’s investment firms register on its website, there were 3,289 authorised firms as at the close of business on 27th January of this year.  That should provide plenty of choice for even the most discerning potential client, particularly as some of those are large businesses with multiple offices and hundreds of staff.

A web search for ‘financial adviser’, ‘financial planner’ or ‘wealth manager’ in your vicinity will, unless you live in the more remote areas of the UK, offer a range of options.  Yet after meeting with a chap recently who was looking for an adviser, it became apparent that this is not necessarily enough.  After all, the authorised firms encompass a wide range of types, from giant global banks and ‘vertically integrated’ firms which provide both advice and products all the way to an individual working out of their spare room.  Given the wide range of requirements that each individual has, what may be suitable for one may be the opposite for another.  In a free market, as long as there is enough demand for a business’s services, it will be able to continue in existence, so that fact that both large and small firms manage to co-exist suggests that such demand does exist.  In the meantime we have regulation to control and hopefully to penalise bad behaviours so as to keep the incompetent and the villainous away from the public and to enforce at least a minimum standard.

But once you have identified some potential candidates who meet your criteria of being accessible, there is still some work to do.  Unsurprisingly, there is more than size that differentiates financial advice businesses.  They also vary in what they actually do for their clients and picking one which might do a brilliant job for some clients but when you want something completely different is not going to work out well for either party.

Part of the problem faced by someone looking for an adviser is the bewildering jargon and terminology in use.  Incidentally, this is not an issue restricted to the world of finance – I recently caught a programme on the radio about a project to demystify the world of medicine for patients.  One of the contributors pointed out that the language of medicine was originally developed to enable medical professionals to communicate with each other with sufficient precision.  Therefore while the man in the street might refer to a ‘heart attack’, a doctor might use the term ‘myocardial infarction’ to differentiate it from other heart conditions.  Latin and Greek were used because it facilitated communication across European borders and at one time medical students needed to have a Latin qualification before embarking on their degree.

Another part is that, particularly for those who have never had the need to engage with financial advice before, it is difficult to know whether the individual and the firm to which you are speaking is actually going to be aligned with your own needs.  They may be the best tax adviser in the world but if you need advice on how to meet the cost of your ageing relative’s care fees, that isn’t going to help you much.

If you are looking for a financial planner to work with, you are likely to be in for a long term relationship, so it makes sense to look at more than one to increase the chances of finding a good match.  Even if all the ones you consider are all equally able, you may just find that you get on better with some than with others.  That’s fine – we are all different and a good planner will want you to be happy with the outcome even if you end up at a different firm.

So with that in mind, here are some questions that you might consider using when meeting with an adviser with whom you are considering forming a relationship.

  1. What are your qualifications?

Although there are minimum levels set by the regulator which all advisers must hold, many have higher qualifications than this.  Since there are several bodies awarding them, feel free to ask for more details.

Having said that, financial planning is a distinct skill which is not the same as learning facts and regurgitating them in an examination.  The international benchmark for financial planners is the Certified Financial Planner™ (CFP™) licence, held by around 181,000 practitioners in 26 territories.  It rigorously tests the ability to pull together multiple threads to form a coherent financial plan rather than just to deal with a specific issue.  A listing of UK CFP Professionals can be found here.

  1. What is your experience?

Regardless of qualifications, some knowledge only comes from experience so it is important to establish how long your adviser has been practising and how the experience that they have is relevant to the job you want them to do.  Professional body the Chartered Institute of Securities and Investment (CISI) recommends using an adviser with at least two years of experience of working directly with individuals in a financial planning role.

  1. What services do you offer?

The services that an adviser offers can vary significantly.  It is therefore important to know what sort of advice you want so that you can determine a good match.  If their services are not appropriate for you, a good adviser will tell you this and may even be able to direct you to a more appropriate firm.

  1. What is your approach to financial planning?

Not all advisers work in the same way.  While some will construct a comprehensive financial plan which addresses all of your goals and forms the basis for a long term process of keeping you on track to achieve them, others may choose to be more limited in scope.  They may focus on pension advice or tax, for example. 

This may be fine if you only want advice on one specific issue but if you want a plan to provide a framework for your decisions, look for a firm for which a financial planning service is at the heart of its proposition.  The CISI maintains a directory of the several dozen Accredited FinanciaI Planning Firms which have passed an assessment process to confirm that they deliver a comprehensive financial planning service aimed at helping their clients to achieve their life goals.  Such firms are required to comply with a code of ethics and operate to a fiduciary standard in which they put their clients’ interests first.

It is important to check whether the adviser has experience of dealing with people whose circumstances are similar to your own – ask what types of clients they typically deal with and where you fit on that spectrum.  You may be able to speak to an existing client of the firm who is similar to you so that you can learn about their experience of it.

  1. Will you be the only person working with me?

Many advisers work as part of a team in the interests of delivering their service efficiently.  Other members of the team may carry out research, drafting documents, data entry and analysis.  Some of the members of the team may attend client meetings and others may only communicate with you via email, telephone and post.  Similarly there may be others who are brought in when their particular specialist knowledge is required.  You may wish to meet all the people who will be working with you in order to form a relationship with them.

  1. How will I pay for your services?

There are three principal ways in which an adviser may charge – a fixed fee agreed in advance, a fee based on time spent or a percentage of some part of your assets on which they are advising you.  Some use a combination.  There is no ‘best’ or ‘worst’ route and each has pros and cons so ensure that whichever route you opt for is one with which both parties are happy.  The basis on which you will pay will be agreed before the adviser starts work with you, although typically at least an initial meeting is at the adviser’s expense so you will not be charged for that (but check first!).

  1. How much do you typically charge?

This can vary a lot between firms but an adviser should be able to give you a fairly clear idea at an early stage in your relationship.  In any case, you must be given this information before you sign up to work with them.

  1. How are you regulated?

Although pure financial planning is not a regulated activity, in practice most financial planners will also be able to implement a plan for you, so will be regulated by the Financial Conduct Authority (FCA).  In order to give investment advice or to recommend specific financial products, an adviser must be registered with and regulated by the FCA.  This also affords you various protections in the event of anything going wrong in the future with the advice you were given.  All regulated retail advisers must also have an annually-renewable Statement of Professional Standing (SPS) from an FCA-accredited body.  You may wish to ask to see this and check that it is not out of date.

You should ask whether the advice they give on financial products is independent or restricted.  Independent advisers have a duty to research products across the whole of the market; restricted advisers do not.  It is also reasonable to ask if they have ever been the subject of disciplinary action by any regulatory body or professional association.

  1. How often do you review my situation?

This will depend on the service you require but an annual review is common, although if your circumstances are highly changeable, more frequent reviews may be appropriate.  Equally, if your affairs are straightforward, you may not need an annual review and every two or three years may be sufficient.  The frequency of these reviews is likely to impact on the fees that you pay.

  1. Can I have it in writing?

You should always be provided with a  written agreement which sets out the scope of the work that the adviser will do and the services provided.  If you have any questions about it, just ask.

While navigating your way through any unfamiliar environment can sometimes feel like working your way through a minefield, these questions should go some way to helping you avoid any unpleasant surprises.