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4 Important Questions You Should Always Ask Your Financial Advisor

When things go south, financial advisors and firms aren’t going to willingly come out with their hands in the air and admit that it is their fault. It’s on you to understand what exactly you’re getting.

New Year is just around the corner. It is always good to spend some time at the end of each year reviewing your portfolio and discussing with your financial advisor if you are on course to achieve your financial goals.

You need to know that financial advisors can sell you a variety of products ranging from saving plans, investment plans, insurance policies and even estate planning.

Often, they also hold vastly different qualifications. With that in mind, here are some questions you need to ask the person sitting in front of you next time during your meeting.

1. What Are Your Professional Qualifications And Training Background?

You want to ensure that your financial advisor is qualified to handle your hard-earned money. Right out the blocks, you should require your financial advisor to be regulated by the Monetary Authority of Singapore (MAS), as not doing so will put your money at greater risk.

People usually have different needs ranging from savings plans, taxation matters, portfolio management, estate or retirement planning and insurance coverage. So whether you’re just meeting the person for the first time or have known them for a really long time, ask them this question before making further purchases or changes to your portfolio.

There are times where financial advisors are incentivised to sell you products and hence might try to skirt around your question. Stay firm and request for their qualification. Bear in mind that some qualifications are not worth the paper they’re printed on, so go beyond that and even ask them for client referees that you can speak to on how the financial advisor has performed.

You must also ask for proper documentation after making any purchase and avoid any verbal promises, unless you’re sneaky enough to have recorded the conversation. This is to safeguard your interests in the event of legal disputes.

2. How Much Are You Paid For Selling Your Products?

As discussed, many financial advisors have monetary incentives to sell you products you may or may not need. Asking how much the financial advisor is remunerated for selling the individual product is usually useful information worth knowing

Some ways financial advisors are remunerated include sales commissions, fee-based, percentage of asset under management and a combination of these methods.

They are those who will argue that knowing how much an agent is remunerated should not matter, since you only pay for the product you are buying and not the agent fee. That is not true. Very often, knowing how much an agent is being paid for selling a policy (assuming they are truthful about it) reveals a lot of information about why they are pushing a certain product so hard.

There are insurance platform such as DIYInsurance that gives you commission rebates whenever you purchase insurance policies from them. The best part about the platform, in our opinion, is that their staff are paid fixed salaries. This gives many people a better ease of mind when they purchase a product.

(Editor’s Note: DIYInsurance is now MoneyOwl. MoneyOwl is Singapore’s 1st Bionic Financial Adviser where human wisdom and technology come together to deliver best-in-class financial advice that integrates national schemes. Visit today.)

On the flipside, we must be considerate enough to understand that financial advisors have families and need to earn a living. As we are the customers and have benefitted from the advice that they have provided, we must be expected to contribute to their salaries. That being said, there is nothing wrong with being on your toes when your make purchases.

If you ask these questions and get the sense that the person is not being truthful with you – walk away.

3. How Should I Build My Portfolio/ Should I Make Any Changes To My Portfolio?

If you’re invested or thinking about investing your money, find out what actions the financial advisor suggests you make. Go into this meeting knowing certain benchmark returns in Singapore – Singapore Savings Bond (SSB) gives an average annual interest of 2.44% per annum (based on Oct 1 figures); the STI ETF has returned –8.43% year-to-date; and Nikko’s ABF Singapore Bond Fund Index has returned 1.25% year-to-date.

Sure, it has not been an easy year for most investment managers, but your financial advisor should be protecting your interests, and knowing what actions should be taken to safeguard your interests and whether you are still on track to meet your goals long-term goals.

Similarly, when it comes to insurance, any changes in your personal circumstances should also bring about some adjustment to your portfolio. And you need to know what your financial advisor’s plans are for you before you decide what’s best. To do this, you could shop around for other ideas, and get a grasp of whether your financial advisor has your best interests at heart.

4. Why Am I Getting These Products?

You should always ask your financial advisor why he or she is recommending you to take certain actions with your money. As many financial advisors are paid when you make purchases, it is not unheard of for financial advisors to recommend you to alter your existing portfolio or to even surrender your current policy, just for a little minor improvement. Many times, the surrender of such policies would not make financial sense for you.

You may need to ask other questions to fully understand the thought behind this decision.

  • Why is this product good for me? How will it lead to me achieving my long-term goals?
  • What are the benefits of this product? And how does that compare to other similar products in the market?
  • Do you think this is suitable for my risk tolerance level?
  • What are the penalties/ charges involved if I decide to sell this product? How long do I get to change my mind after buying this product?

This list of questions is not exhaustive but will provide you an insight into why your financial advisor is recommending you to buy a certain product. Make sure you fully understand why you are making the purchase before actually making the purchase.

Especially important, you need to note that if an advisor asks you to invest your CPF monies, he or she better have a very good reason. Your CPF money is already earning you good returns and not suffering any risk at all, nor incurring any transection cost. If your advisor cannot give you a good reason for that, we suggest you not only avoid the policy, but also the person as well.

Making Sense Of This

The right financial advisor may not be easy to come by. You are required to do some legwork if you want to get the best deals while protecting yourself from deals that are too good to be true, on the surface at least. Find an advisor that understands your needs and where you want to be in the long-term.

If you don’t already have a financial advisor, you can still ask your insurance related questions in this Facebook group, which is set up to promote honest and transparent discussion relating to insurance matters in Singapore.

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