The relationship between an investor and financial advisor requires trust, transparency and mutual understanding. The investor can feel like they are at a disadvantage because they may lack a strong grasp of financial and investment workings. Such individuals could gain a better understanding by asking questions.
A good financial advisor is always willing to answer a would-be investor’s questions no matter how simple, because an informed investor is an asset. It is easier to ensure a client understands the product beforehand than being confronted angrily later on for misleading them.
What are some questions you should ask your financial advisor?
Questions about the product
Is the product regulated by the Capital Markets Authority (CMA) or relevant regulatory body? This can be a useful way to sieve out investments which may not be compliant with the regulations meant to protect investor interests.
How does the product fit with your overall investment goals? Many investors want to grow their portfolios over the long term. Some invest in order to earn a regular income they can live on. For others, capital preservation is the main concern. While the reasons vary, the products you invest in should be aligned with your goals.
How does it make money? Specifically, what must happen for this particular asset to increase in value? – This will help you differentiate between actual investments and scams. It will also help you understand the level of risk associated with the investment.
What are the risks? – Always understand the risk involved and decide if you are able to stomach it. Understand, also, the risk management strategy used and gauge whether it has been effective in the past.
What are the fees involved? – What will you end up with after everyone else has taken their cut? Fees can make a large dent in your bottom line. They should be considered before you make a decision.
How liquid is it? – If/when you decide to exit the investment, what are the steps? How long will it take? Are there any penalties for early withdrawal?
Questions about the financial advisor
What training/experience does the financial advisor have? Are they part of any professional bodies? – This helps establish the financial advisor’s credibility as an expert.
Does the financial advisor earn more if you buy A instead of B? If they weren’t making extra money, would the recommendation still be the same? – This helps you understand whether the agent is working in your best interest or if he/she has a vested stake.
Questions about the firm
How long has the firm been in business? What other products does it offer? What is the firm’s history? – This helps you look at the bigger picture and understand the kind of company you will be trusting to manage your investment.
What are existing clients saying about the firm? – Other clients’ experiences are a big predictor of what your own experience will be, so pay close attention to what they say. Are they happy with their decision? How were their grievances handled? Do they tend to praise or condemn the firm?
In conclusion, kuuliza si ujinga. Quite the contrary. It allows you to understand a product, the person selling it to you and the company they work for, so that you make an informed decision. Ultimately, this should help you achieve your investment goals.