KEY POINTS:
One of the worst aspects of my job is meeting people who've been badly burned by a poor investment experience. You can tell the difference between advisers who can be trusted to look after your interests and those who are out for themselves by the answers they give to these questions:
Do you charge a fee-for-service, or are you paid on commission?
Fee-for-service advisers work differently from advisers who take commissions from investment companies. They have no vested interest in recommending one investment over another or suggesting you switch investments. But they do have a vested interest in increasing your wealth and retaining you as a long-term client. The commissions-based adviser may gain from recommending one investment over another and may recommend you switch between investments so they can collect commission.
Is your company affiliated to or controlled by another financial services organisation?
If an adviser can only introduce you to investments from a "company approved" list, then they can't offer an independent view. Unfortunately, it's standard practice for such lists to include only the names of fund managers who pay to be on them despite poor performance, while better funds don't appear.
How many clients do you service?
The attention you receive from your adviser will depend partly on their commitment to other clients. As a rule of thumb, an adviser should have no more than about 150 clients/client families. High net worth clients with more complex financial affairs require significantly more time, and an adviser with such clients would probably not have time to service more than 50 families effectively.
On what basis do you help clients identify their goals and the future value of their investments?
While almost all financial planners undertake some form of financial needs analysis and goal setting, in many cases this is a brief exercise unrelated to a client's existing assets or proposed new investments. Establishing exactly why a client wants to achieve certain goals and what trade-offs they are prepared to make along the way should form a core part of an adviser's service. Helping clients establish the objectives of their wealth strategy is about far more than ticking a few boxes. It should
be based on established psychometric assessment and risk-profiling.
What is the average duration of your client relationships?
A financial adviser who can demonstrate long-term client relationships is doing something right. A long-term timeframe for investments is also required, particularly for those pursuing an aggressive growth strategy. You should be looking for someone with whom you'll be happy to work for at least the next seven years.
* John Atkinson is the chief executive of Plan B Wealth Management.
