Things to Consider Before Getting Financial Advice

Questions to Ask Yourself

Before you speak to a financial adviser it is important that you take some time and think about what you want to get out of financial advice. In general, the more accurately you can explain your current situation, needs and objectives to your adviser, the better equipped they will be to provide advice that will help you meet those needs and objectives. Below are some questions you might wish to consider asking yourself before meeting with a financial adviser:

Do you need advice or just information?

Think about whether you want a full advisory service or are happy making your own decisions regarding your money. Financial advisers will often provide information and fact sheets about the products they offer.

Are you planning for a particular event?

Such as buying a house or paying for your children’s education. You should consider what future events you need to plan for financially.

How much money do you have to invest?

Make sure you can afford whatever you intend to invest. If you are planning on making regular payments into a pension or saving product it may be worth reviewing your budget. You may want to consider clearing any outstanding debts and bills first.

How much risk are you prepared to take?

Whenever you invest money there is always a chance you could get back less than you put in. In some cases you may get back nothing. In general, riskier investments will return more money if they do well, but may have a higher chance of losing money. Also, investment returns are often higher on something that is invested for longer.

How long are you able to tie up your money for?

This will affect the types of products your adviser will recommend.

Do you have any special investment requirements?

Such as ethical or environmentally friendly investments, or products that operate according to religious principles.

Do you want one-off advice or an ongoing service?

Make sure you understand the service your adviser is providing and the costs involved.

What to Expect From a Financial Adviser

  • If you do decide to speak to a financial adviser they should explain the types of products and services they are qualified to advise on, and any limitations to the range of products that they are able to advise on.
  • Financial advisers are paid either in the form of a flat fee paid by you for the work they carry out, or by commission, where they receive a percentage of the amount you invest from the product provider. In either case your adviser should disclose clearly how they are remunerated for the advice, and the amount they receive.
  • Your adviser will then look to collect information about your personal and financial circumstances and identify your needs and objectives. Some of the information they ask for may be quite personal but if they do not understand the state of your finances and personal circumstances, they are much less likely to be able to give you suitable advice.
  • For example, if you have an outstanding loan the best use of the money you have to invest may be to pay it off as the return you could earn on it may not be as much as the interest you are paying, depending on the amount of risk you are prepared to take. Alternatively you may have a child going to university in a few years and will need the money to pay for it. If your adviser did not know about the loan or your university plans they might recommend you make a low risk investment instead of clearing your debt, or may recommend you make a long term investment, so the money is not available when you need it.
  • You should review the information your adviser has recorded and make sure that it is accurate.
  • Your adviser should help you determine how much risk you are willing and able to take with your investments. This is often referred to as your attitude to risk and your capacity for loss.
  • Attitude to risk is an expression of how much risk you feel comfortable taking. Higher risk investments are more likely to change in value and change by a greater amount when compared to lower risk investments. Your adviser may go through a questionnaire with you and discuss the potential consequences of investing with various levels of risk.
  • Capacity for loss is about how much of your investments you could afford to lose without significant impact on your quality of life now and in the future. Your adviser should be able to determine this based on the information you have provided them.
  • Once your adviser has a clear idea of your circumstances, needs and objectives they will usually prepare written advice setting out what they have recommended and why, along with an explanation of how the recommended products work and any risks involved. You should carefully read the written advice and make sure you understand it before agreeing to invest in anything.

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