What Should You Look For in a Financial Adviser?

Professional financial advice is invaluable. Yet, why are so many investors averse to paying 1% per annum for advice that may improve their long-term outcomes by as much as 3% per annum?

What Should You Look For in a Financial Adviser?

23 Nov 2017 by  Edward Kennan

For some investors, the value of working with a financial adviser is peace of mind. Although this value is not actually quantifiable, it’s very real nonetheless. For others, working with an adviser can provide more tangible and quantifiable outcomes—including higher net returns. 

Whatever the reason may be, it’s crucial to partner with an adviser who seeks to understand your personal financial needs—without the anti-fee rhetoric of many independent financial advisers (IFA’s) who are selling cheaper investment ‘advice’. After all, nothing comes for free!

Vanguard’s “Putting a value on your value” 2016 study found that investors obtain broad benefits from the planning, portfolio construction, and wealth management process—especially through behavioural coaching by a skillful financial adviser. In fact, behavioural advice alone can add 1.50% to a client's long-term performance. The study also found that an adviser who helps a client find and use lower cost investment tools can add nearly 0.50% per annum to long-term performance; managing asset allocations between taxable and non-taxable accounts can add up to 0.75% per annum; prudent rebalancing can add 0.35% per annum; and intelligent withdrawal strategies can add another 0.70% per annum.

However, the most significant value by far can be realised from an adviser helping his or her clients develop, understand, and stick to their financial plan. Abandoning a planned investment strategy can be costly, and research has shown that some of the most significant mistakes are psychological—particularly relating to the tendency to sell in panic and the temptation to chase performance.

This is where financial advisers are critical. A financial adviser’s job is to persuade investors like you not to abandon the markets during periods of volatility as well as dissuade you from chasing the next ‘hot’ investment. They are there to remind you of the plan you had created before emotions were involved. Trust is everything—which is exactly why strong relationships need to be built between your adviser and you, long before the bull and bear market periods that may challenge your confidence in your existing financial plans.

What makes a good financial adviser?

It’s not always easy to find the right adviser the first time around, so here are a few questions to help you identify the one that’s right for you. When speaking to potential candidates, ask:

  • How will you help me to achieve my financial goals over the long-term?

  • How are you being remunerated for your services?

  • Will I be penalised for withdrawing my funds? 

  • What is your framework for keeping in touch with me?

When it comes to managing your money, cheaper investment advice isn’t a necessarily better deal—and it could well prove to be more costly over the longer term. After all, is it really a bad deal to pay 1% per annum for advice that may improve your long-term outcomes by as much as 3% per annum?

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Edward Kennan

Edward Kennan is a Client Adviser with Aon Hewitt Wealth Management. He has more than 15 years’ experience in financial services, with a career spanning Australia, London and Singapore. Edward helps clients make informed financial choices and ensures that they remain on track to achieve their financial goals in an environment of continuous change.

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