How to Choose a Financial Adviser
A good adviser will save you a lot of money and potentially a lot of worry. Choosing one is not easy and requires some work, but it is worth the perseverance and investment in terms of time spent on the task.
If you Google ‘choosing a financial adviser’ you’ll get a long list of suggestions of how to go about it. To follow is our general guidance on choosing an adviser if you are a U.K. expatriate:
Personal recommendations are a common way for people to find a financial adviser, such recommendations often come from friends or family members. Undoubtedly personal recommendations are a good starting point, but you probably need to probe a little deeper. Afterall, being ‘nice’ doesn’t mean that somebody will be a good adviser or a good ‘fit’ for you and your family. This could well be a relationship spanning several decades; you need to be happy with the choice now and in the future. Do your own research and exercise due diligence[i].
Web searches are part and parcel of modern life, we all do it and often act on those very searches. You might get lucky, but we think relying on Google to list ‘suitable’ firms for you is not enough. Advisers can optimise their websites using keywords to rank higher in such searches and can also pay to pop up on your screen. Feel free to get a list of names to check-out in this way but do not think that a Google search can replace your own research and due diligence.
What’s in a name? Advisers have many differing titles. A title can be defined as the name that describes someone's position or job. You might come across the following: Financial Adviser, Financial Planner, Wealth Manager, Investment Adviser or quite a few others. They might do similar jobs and they may or not have specialisations that are important to you. Again, part of your research and due diligence will require you to match your needs to what a prospective adviser can do for you. If lifetime cashflow planning or holistic planning is important to you then you might need to talk to a financial planner or wealth manger. If you want to choose a fund to buy, then an investment adviser might help.
Fiduciary or not? This is an easy one; you likely need a fiduciary adviser or planner. This has recently been a hot topic in the U.S., Investopedia have a useful overview on what a fiduciary is and does[ii].
Fees or Commission? Another easy one, fees wins every time. Put bluntly if a commission is involved then an advisers’ objectivity might well be compromised. The interests of a professional charging a fee will be aligned with your interests. This loops back to the fiduciary point above. You invest U$1,000,000 of your hard earned cash, would you feel comfortable paying 5% or more that was contingent on the transaction or would you prefer to pay a fee that was not contingent on any transaction. Similarly, some advisers might forgo the 5% (or more commission) and charge you a fixed fee that better reflects their efforts on your behalf, Let’s say these amounts to US$5,000. This must be preferable to paying US$25,000 or more in commissions. We think that commissions can cloud objectivity if not lead to a defined conflict of interest. Investopedia have a good article on this[iii].
Does the adviser deal with people like yourself? Ask about the type of client an adviser deals with, are they like you? If not, then that might be a clue as to how suitable an adviser is for you.
Testimonials We’d put these in the same bucket as Google searches. Yes, they are helpful but the ability to talk to a real and existing client is preferable. Ask if you can talk to one or two clients, this will be helpful and offer you the opportunity to probe beyond the glossy brochure, fancy website or polished sales patter.
Qualifications and Professionalism Advisers need to be qualified, if you are a U.K. expat then you likely need advisers who have U.K. qualifications and who are knowledgeable about U.K. specifics like taxation, trusts, pension etc. As a rule, your U.K. qualified adviser will have a level 4 qualification (diploma) from the Chartered Insurance Institute/Personal Finance Society or the (CII/PFS) or the Chartered Institute for Securities & Investment (CISI). They will also be up to date with their CPD (continuing professional development). You will also come across level 6 and level 7 advisers. These are often chartered and should really know their stuff.
Now, being chartered does not mean that your ‘moral compass’ points in the right direction. In 2018 several Chartered Financial professionals and companies were involved in the provision of unsuitable advice in relation to then members of the British Steel Pension Scheme (BSPS). Investigations surrounding these shortcomings are continuing so we will not make specific references but an October 2018 piece in the FT highlights the central issues[iv]
“More than 800 steelworkers were persuaded to give up guaranteed pensions”.
Suffice to say if your would-be financial adviser wants you, as a U.K. expat, to transfer your U.K. defined benefit pension scheme then you need to be very cautious about their motives.
Regulation This is a basic ‘table stake’ requirement, but we are constantly amazed by how many expats take investment ‘advice’ from an ‘adviser’ who is regulated to sell insurance products but who is not regulated or authorised to give investment advice. If you need investment advice in HK or the wider region then check that the adviser person is on the regulator’s register. In Hong Kong you check the SFC register here.
U.K. expatriates might want to select an adviser that has a regulated UK arm to ensure joined-up advice both offshore and onshore. Financial planning can be complex where more than one jurisdiction is involved. You can check the U.K. FCA register here.
Active or Passive? If you need to invest money you need to know if the adviser uses active managers or if they follow an evidence-based or passive methodology. There is much academic evidence to prove that the actively manged dollar must underperform the passively managed dollar; we think that retail investors need to avoid actively managed funds. Google will show you the way a large body of articles on this topic, we urge you to do your research and due diligence on this vital area. Here as some links to get you going:
Conclusion Determine what you need (and don’t need) from an adviser, write this down and prepare a list of questions to ask prospective advisers. Take your time, ask lots of questions, check qualifications, regulatory status, talk to real clients about their experiences make notes as you go then compare this to what you want from your adviser. Good luck, it will be worth the effort - you WILL get a return on the time invested.