“He seems like a nice guy.”

“She’s in my wife’s friend’s running club.”

It’s shocking when you think about it but all too often these are our frighteningly random reasons for choosing a financial adviser. Especially here in Ireland; knowing someone who knows them is as good a reason as any to use a financial adviser’s services. Is this really a sensible approach?  Of course not.

Trusting someone to advise you on your hard-earned cash or on securing your and your family’s future should not come quite so easily.  First of all, have you any idea what qualifications they have or how are they authorised? Which services are they licensed to offer? How do they charge for their services? What standards do they adhere to?

These are just the basics. Here’s your quick test to see if the ‘nice guy’ or ‘wife’s friend’ will stand up to scrutiny.

1. What are your qualifications?

There is a baffling array of financial qualifications that a financial adviser might have. If he or she replies with an acronym that means nothing to you, ask what it stands for. The answers to the following questions will reveal useful information about his or her training:

-How long did they have to study for it? (That tells you how in-depth it is).

-Is it part of a series of qualifications that leads to something bigger? (That tells you whether or not they’re fully qualified)

-Are they planning on getting further qualifications? (That will tell you where their certification is in the pecking order). A CFP® (Certified Financial Planner) designation is the highest qualification possible in Ireland.

You should be satisfied that your adviser’s qualification fulfils the minimum competency criteria set out by the Central Bank of Ireland, the regulatory body here for the financial industry.

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The Central Bank provides a useful list of available qualifications, which you can see here. Certain accreditations are specific to product areas such as pensions or life assurance. What is important about such qualifications is that the individual must continue to adhere to standards of expertise and codes of practice as set out by the awarding bodies and must engage in continuous professional development to be eligible to use the designation.

2. Who do you work for?

Sometimes we find ourselves sitting across the desk from a financial adviser without being fully clear who they are or why we are there. Say you’ve responded to an invitation from your bank to meet a financial adviser or to a cold call from a pensions adviser. If the adviser works for the bank’s investment side or the pensions adviser works for one particular company, like Irish Life, you know where you stand – they’ll only be selling you products or services offered by the bank or the pensions company.

If they work for themselves, it doesn’t necessarily mean they are independent. They could be tied agents to a bank, an investment or pensions company, which also means they can only sell that one company’s policies.

If the adviser is a broker, they typically have a pool of different investment, insurance and pensions providers from which they can draw, so you have more choice than with a tied agent, but a broker is still not 100% independent.

“A 100% independent financial adviser or planner does not work for any one financial institution. They are there to assess your needs based on a holistic view of your finances and to suggest a long-term strategy for you.”

3. How do you get paid?

If your financial adviser isn’t charging a fee for advice, but is depending on selling a product to you to make his or her crust, you’d have to ask yourself how you will ever get a fully objective service.

If he or she is paid in commissions, ask how much commission he or she is getting if you sign up to the product or service being recommended. Ask if he or she is taking the entire commission or if some of it can be passed on to you in the form of an investment enhancement. Having said that, a free gift is not always free…

If there is an Annual Management Charge (AMC) with a product, be sure to ask how this is broken down. Sometimes there’s a portion for your adviser and a portion for the product producer. This is important to know, especially if you are also paying a fee for the adviser’s time. If you are paying an annual charge, be clear about what you get for that. But rather than asking about the AMC, ask about the Total Expense Ratio (TER) or ongoing fund charge.

If your adviser does charge a fee, ask if they are fee-only or fee-based. Fee-based means they may take a commission or partial commission as well as or instead of a fee.

Don’t be shy about asking about fees. There should be complete transparency so that you can make a decision based on full disclosure.

4. Are you right for me?

When you’re shopping for a new phone, the choice can be bamboozling so before wandering into the shop, it helps to figure out what you need your phone to do. You may still need advice but at least you’ll have a set of criteria to make sure you get what you need. There are many different types of services offered by ‘financial advisers’ so you should try to work out what service you need and then find the right kind of adviser.

If you know exactly what you want, then you may just need the services of a broker, however, don’t expect holistic financial planning. If you need help and guidance as well as products or services, a qualified, independent financial planner is the way to go. You may see the term ‘fiduciary’ associated with financial services. A fiduciary is obliged to look after your assets on your behalf for your benefit (in other words not for his or her own benefit). So if you want to be sure your adviser is driven by what is best for you, rather than what is merely suitable, look for a commitment to adhering to fiduciary duty.

Continue your journey with The Money Advisers. Start here.

Bob Quinn of The Money Advisers in Naas

Hi, I am Bob Quinn, a fee-only independent financial adviser in Naas, Co. Kildare.

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