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Seven questions to ask your financial adviser

If you’re fortunate enough to have enough assets to want or need to take financial advice, it’s important to choose the right adviser.

In the past few years, the way financial advisers offer their services has seen a big shake-up under new rules called the Retail Distribution Review (RDR). The new rules have had wide-ranging consequences for the industry. They have changed the way advisers offer financial advice, the types of products they can sell, how they will be paid and the minimum level of qualifications needed to work in the industry.

If you’re thinking about taking advice to help with your retirement planning or other financial planning decisions, here are a few questions you could bear in mind when choosing your adviser.

What type of advice do you offer – Independent or Restricted?

Under the RDR, the range of products that advisers can offer advice on is broken into two broad categories – Independent and Restricted. Independent advisers can offer – potentially – any product on the market and must take into account all relevant options when giving advice.

The number of products a Restricted Adviser selects from may vary significantly. For example, one Restricted Adviser could opt to select from just 20, with another opting to choose from 1,000.

Although the term ‘Restricted’ might carry certain negative connotations, this type of advice may well be appropriate for the majority of people. A Restricted Adviser may specialise in certain areas, but can still research a very broad range of products and providers (even the whole market, if they wish), on your behalf, in order to offer tailored recommendations suited to your financial objectives.

How are you paid? What fees do you charge? 

The RDR has also clarified how advisers are paid. It has banned the practice of advisers being allowed to take commission from providers to recommend their products. All fees must also be agreed with clients upfront and can be paid upfront, although you can also choose to have fees deducted from your investments. Your adviser should also provide you with a document outlining their services and the associated charges. You may also wish to ask for example breakdowns of how fees can affect your investment returns over time.

What professional qualifications do you have?

The UK financial watchdog, the Financial Conduct Authority, has set out stringent standards that investment advisers must meet in order to be able to continue practising, which includes signing up to the industry code of ethics and completing at least 35 hours’ Continuous Professional Development (CPD) each year, to stay up to date with changes in the industry and regulation. Going further than this, you might ask what experience or qualifications they have beyond the minimum requirements, or whether they are active members of industry or professional bodies, as this usually indicates that they have an interest in and commitment to the profession.

What’s your investment approach?

While advisers – particularly those offering Independent financial advice – have a duty to take all options into account, what products or approaches they recommend may be affected by their own attitudes or experience. It might be a good idea to ask your adviser if they have a preferred investment strategy or approach and why this is the case. For example, some advisers may favour passive investments (e.g. products that track the performance of the market as a whole) over active investments (e.g. products that are managed by a fund manager team, who research and identify investment opportunities). It can be helpful to understand where they’re coming from in terms of advice to understand how and why they reach their decisions.

How hands-on are you with your clients and what level of service do you offer?

Think how you would like to be treated by your adviser in terms of customer service. Ask how often the adviser gets in touch with their clients, why and how they do so – do they call, send an email or a letter? When do they get in touch – as a regular matter of course, when markets make sudden movements or just around the time of your review? What information do they give and who will actually get in touch – the adviser themselves or someone else in the firm? When it comes to reviewing your investments, will the adviser talk you through their performance and discuss future plans in person?

What’s your performance history?

As any investment professional will tell you, past performance is no guarantee of  future results. A star investment manager who has performed brilliantly for their clients over a number of years may struggle to repeat that success in future years. However, a good adviser should be open and transparent about the performance of their recommended funds and investment strategies as a matter of professional courtesy.

How do I fit in with the rest of your clients?

While your adviser should have a wealth of experience in managing money for a range of different client types, knowing that they have experience of your particular type of situation can be reassuring. Just as you might be uncomfortable with a tax lawyer handling a divorce case, as it would be outside of their professional field of expertise, you should be confident and comfortable that your adviser understands your needs and has other clients like you.

Have you considered financial planning? Are these questions you would ask your adviser or do you have some tips of your own? We’d love to hear from you so feel free to comment below.

This article has been commissioned by retiresavvy and any opinions voiced are the author's own.

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