How to choose a financial advisor

Experts create a growth roadmap that can adapt to dynamic monetary situations and help investors successfully secure their family‘s future

By Udayan Ray

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Published: Sun 17 Jul 2022, 9:03 PM

Last updated: Sun 17 Jul 2022, 9:04 PM

Type a query on managing your finances on your mobile phone and you will be buried by an avalanche of information and advice. That is where the problems just start.

Why do you need a financial advisor?

First, there is conflicting advice and worse, you are mostly unsure of the quality of information and advice. To this confusion add the off-the-cuff suggestions made by bank staff and uninformed advice from family and friends. Second, such is the range of choices in financial products, making an informed choice becomes a formidable task.

Third, if you are juggling home and work and just about getting some quality time with your family, you do not need a new item demanding your time. Fourth, even if you have the time, you might not have the expertise of making and managing investments, insurance, tax, and making plans to secure your family’s future.

Finally, there is often no one to calm you and ensure that you take the right decisions when things head south, such as during market corrections, or when you are euphoric in booming markets.

Sure, you might be the quintessential do it yourself (DIY) person but then even doctors do not treat their own ailments and lawyers engage their peers. You need quality financial advice delivered by a financial advisor, an individual or an organisation that helps you fulfil your financial ambitions.

How can financial advisors help?

Unlike the common misconception, it is just not the very wealthy who need financial advice. Regular people need it too.

A good financial advisor should help you with credible information and quality advice suited to fulfil your needs. It could be a modest requirement in the form of tools and insights to enhance the returns on your investment and create wealth. It could also be broad in scope with end-to-end solutions for fulfilling financial goals like buying a home, kickstarting your start up, children’s higher education and retirement.

Being professionals, financial advisors base their advice on credible information and data besides insights, and thus take emotions out of your financial decision making. This ensures bad calls you made in the past do not influence your decisions. You not only save time but even in case you are financially savvy, you get another point of view that helps you act with conviction or benefit from a critique.

In case of a broad brief, such as that for financial planners providing financial planning services, financial advisors provide much more than help in making fresh investments. Among other things, they help in tracking and periodically rejigging investments, managing tax, getting protection in the form of insurance besides legacy planning.

In Dubai, for expatriates, financial advisors can help in specific areas such as providing guidance on tax-efficient remittance and investments in home countries. There are also areas such as regulation-compliant financial behaviour in home countries such as for foreign exchange regulations in India.

Determine your requirements

To determine the financial advice and financial advisor you need, first determine your requirements.

If you are financially aware and savvy, and prefer to manage your finances, especially investments, you are likely to need new investment ideas, insights, and tools to enhance returns and grow wealth. On many occasions, it could mean fulfilling a goal such as accumulating Dh10 million. You can opt from available financial advisory options depending on the extent of help you require.

In other cases, you will need greater help and guidance to meet major financial goals such as children’s higher education. In such a situation, you need end-to-end financial planning advice from financial planners for creating a financial roadmap besides its modification on reaching life milestones, such as the birth of a second child.

Choose from three 
major options

Depending on your requirements, you can choose from three major options for financial advisory services.

Robo Financial Advisors

While offerings may vary among providers, Robo Financial Advisors use smart algorithms to generate and recommend investment portfolios based on information provided by customers. They also provide personalised advice and insights using digital portfolio management tools. This option is meant for the financially savvy individuals who have substantial investments and wealth and seek superior performance. Of course, you miss out the human interactions such as guidance during volatile markets or individual advisor insights on tapping short term investment opportunities.

Asset and wealth management services

For those with higher amounts of investments and wealth needing greater help and guidance over time, there are investment or asset management services. They are also often termed as wealth management services. While such services have been provided by individual companies, banks and other financial institutions, the digital landscape has rapidly evolved in recent years.

How do they work?

In Dubai, you can seek digital financial advisory services that combine automated processes involving digital and in-person interactions with dedicated and highly skilled financial advisors. They provide quality guidance and insights. In such services, many processes like fresh investments and portfolio updates are automated. For specific individual queries and guidance, dedicated financial advisors interact online.

Unlike Robo Advisors, such services provide end-to-end and holistic advisory services with higher personalisation based on goals and considering previous experiences. The financial advisors create a growth roadmap that can adapt to dynamically changing situations and help you successfully execute them for enhanced growth. Research-based insights and guidance helps you stay ahead of the curve.

Digitised processes using financial technologies help make the process of making fresh investments and rejigging investments convenient and seamless. DIY activities of investors are aided by real time updates through alerts, notifications, and other tools. Both Robo Advisors and digital wealth and asset management services deliver significant advantages. Investors receive benefits such as lower service costs, greater transparency of offerings and charges, convenience of easier access to expertise from anywhere.

Financial planning services

Here, the financial advisor provides end-to-end solutions for achieving important financial goals. Not only are you provided with a roadmap for each goal, but you are also informed how much you need and by when. You also get a detailed plan on how to achieve your various goals.

Continuous interaction and guidance with the financial planners ensure that your financial plan evolves and adapts to the numerous changes in your life. Being a 360-degree solution, financial planning services are so much more than just improving the returns of your investments and generating more wealth. They take care of all aspects of your financial life including tax and legacy planning.

Financial planning services are ideal for people who are not well-versed with various aspects of finance and do not have the time or expertise. They need quality advice from professionals of impeccable integrity on a continuous basis to achieve their short term and long-term financial goals.

What to look for in financial advisors

Check for qualifications

Among the first things to check while choosing a financial advisor is their qualifications. This means qualifications like Certified Private Wealth Advisors (CPWA), Certified Financial Planner (CFP), Certified Public Accountant (CPA), members of Chartered Institute of Insurance (CII) and Chartered Institute of Securities and Investment (CISI).

Enquire about regulatory registration

Ensure that the professional or the financial advisory service provider is registered with at least one regulatory or statutory body. In Dubai, this means checking whether the financial advisor has a licence from Dubai International Finance Centre (DIFC). There is also the Dubai Financial Services Authority (DFSA) which focuses on financial advisors and deals with complaints against them. You can check the financial advisor’s registration there. The other important regulators are the United Arab Emirates Insurance Authority and Emirates Securities and Commodities Authority. This step will help you opt for a financial advisor with conviction.

Check credibility and track record

If it is only investment recommendations or strategies that you are seeking from a financial advisor, you should first find out whether the advisor is technically equipped and has a track record that you can trust.

Seek referrals

An ideal way to reach the right financial advisor is to seek references from your circle of family, friends, and relatives. This will help you evaluate the number of services offered, their quality and compatibility with your needs. Importantly, it will also realistically set your expectations. In case a financial advisor approaches you, seek referrals of people with whom you can cross-check.

Find out risks and costs

Insist on detailed disclosures of risks to service quality and outcomes, besides costs. Do not agree to a plan, especially investments, that you do not understand. Understand the risks involved in every product in the plan whether the risks are to the returns or the principal amount.

Find out the charges or costs that you need to pay and what will get deducted from the growth of your investments. Remember, the more the number of costs and larger they are, the less you benefit. That is not to forget the age-old saying about unrealistic promises of returns “If it seems too good to be true, it probably is.”

Get details of fees and charges

Transparency in charges for financial advisory services is crucial. In any case, you need to have a grip on the details to make an informed choice of the financial advisor. Depending on their compensation, financial advisors can be classified into two broad categories.

Commission-based services

First, commission-based financial advisors charge a certain percentage of the value of investments made on their recommendations. They could also take this commission from the financial services company providing insurance, investments, or other products if they are involved or linked in the distribution of financial products.

Fee-based services

Second, the category of financial advisors who have fee-based charges. Their focus is primarily based on providing the best financial advice to the customers and are typically based on the amount of the time spent in making the financial roadmap and subsequently for progress reviews.

The fee can be a flat charge. It could also be according to the size of funds or assets under guidance, such as 1% of assets under management, and so on. There could be hybrid arrangements such as a combination of fee and commission from new investments.

Numerous studies have found reluctance among customers to pay for financial advisory services which makes many financial advisors prefer the commission model. However, such a model risks the danger of delivering biased advice in favour of the products sold by the advisor. In many cases, there can be recommendations of high-cost products providing high commissions. In extreme cases, there can be unwarranted rejig of investments. For unbiased advice, it is better to opt for a fee-based financial advisor and be prepared to pay for quality expert advice.

First steps

For financial advisors providing holistic or end-to-end services, the first meeting with customers is likely to involve a detailed interaction involving a status check of finances along with sharing essential details like financial goals, family’s financial history and money attitudes such as risk appetite.

Next, if you want to engage the financial advisor on a longer-term basis, you could negotiate a lower charge or waiver for developing the initial financial plan, opting for an annual maintenance charge.

Get details of the advisory process

For a long-term relationship, get details of how updates will be provided and how performance reviews will be conducted. Be sure that the financial advisor commits to earmarking time for these periodic interactions and exercises.

Seek a pitch from the advisor

During the selection process, ask the obvious questions to the financial advisor such as the unique elements in the service offerings, differentiating aspects compared to competition and how the advisor can help you achieve your goals.

Qualified and expert financial advisors can fashion a winning financial game plan for your money and help you successfully execute it to achieve your goals.. The key is for you to recognise at the outset, the need for expert financial advice with consistent follow up actions over time to drive home the advantage from the helping hand. No wonder famous American playwright Wilson Mizner once said, “To profit from good advice requires more wisdom than to give it”.

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