Five ways your financial adviser might have helped you more in the past twelve months

31st March 2009

You might be feeling a bit ostracised by your financial adviser over the course of the last year but unsure why.  Here are five very good reasons for feeling let down by your financial adviser.  Do you recognise any of these?

1 – They have buried their head in the sand. 

Investment values might have plunged, but that is no excuse for hiding from reality.  Even when there is bad news to deliver, your financial adviser should be getting in touch on a regular basis.  This regular contact is essential to explain what has been happening and what is likely to happen next. 

It is also important to be offered a regular review of your financial plans to take account of changes to your personal circumstances and objectives.  As time goes by, things change.  With so much volatility in the investment markets it is likely that the asset allocation of your pension and investment portfolios have changed quite a bit.  An annual review meeting (at least) is an opportunity to rebalance your portfolio and ensure that your plans for the future remain on track.

In addition to an annual meeting to review your plans, your financial adviser really should be in touch on a frequent basis with general information and updates.  This can take many different forms but might include an email newsletter or regular valuations of your holdings. 

The bottom line is that a financial adviser who is not contacting you regularly is really not helping you much. You might feel particularly aggrieved if you are paying them for an ongoing service, directly or indirectly through fund based commission paid out of charges on your financial products, and not naturally receiving a service. 

2 – They recommended products or funds they didn’t understand.

Part of the reason for the credit crunch and global financial crisis was the role of the banks investing in complicated financial instruments where the risks were not properly understood.  Sadly some financial advisers are tarred with the same brush when it comes to their understanding of the products or funds they recommend to their clients.

Several examples of these have started to come to light over the past twelve months.  The worst potential offenders are forms of structured products which claim to guarantee your capital whilst still offering investment returns linked to various stock market indices.

A simple rule to follow – if your financial adviser cannot explain the intricacies of a recommended course of action in less than two minutes, think carefully before investing your hard earned cash.  In the world of financial planning there is rarely the need to utilise complex financial instruments.  The simple tried and tested strategies usually work best, cost the least and are unlikely to deviate wildly from the original intention.

3 – They haven’t been doing their homework.

The next time you meet with your financial adviser, ask them if they have taken any exams recently.  New proposals from our regulator, the Financial Services Authority (FSA), mean that every financial adviser will need to hold an advanced financial planning qualification by the end of 2012 if they want to keep advising clients.

These new rules recognise the limited use of the current benchmark qualifications – the Financial Planning Certificate or Certificate in Financial Planning.  The new requirement will be for every financial adviser (independent and tied) to hold a minimum of a QCA Level 4 qualification, which is broadly equivalent to the current Diploma in Financial Planning.

If your financial adviser has not already started to make progress towards this new higher benchmark, they will find it increasingly difficult to reach this qualification level before the end of 2012.  Ask your financial adviser about their study plans and look carefully for signs that they have not already reached the new level. 

4 – They have relied on fund rating agencies when making recommendations.

Independent fund rating agencies have a role to play in the selection of investment funds, but it is a limited role.  In fact, most ratings are publicly available.  If your financial adviser relies on these ratings alone before recommending funds, they are effectively charging you money for something you can do yourself for free.

A financial adviser should have a documented investment research process which looks at more than simply fund ratings or past performance.  This means subscribing to a professional fund research package, which can be costly, but the old method of relying on the tables published in industry magazines such as Money Management just doesn’t cut the mustard anymore.

5 – They have been trying to time the markets.

When investment markets plunge in value, it becomes very tempting to take out the crystal ball and take a definite position.  If your adviser has been recommending you move to cash and then back into equities, there is a good chance they have been trying to time the markets.  Get it right and they will look like a hero.  Get it even a little bit wrong and the net result is you crystallise your investment losses and miss out on the main part of the market recovery.

Investment professionals never try to time the markets because they recognise it is simply not possible to do this with any degree of accuracy or consistency.  Your adviser might get lucky once in a while – but odds are they will get it wrong and your portfolio will be the thing to suffer.

Research tells us that it is length of time in the markets which really counts, rather than trying to time the markets.  This means invest your money, stay invested and then stay invested a bit longer.  Making investment decisions with your heart rather than your head is what causes people to disinvest at the bottom and reinvest at the top of markets.

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