What to look for in a Financial Advisor

NAV TL;DR

If you don’t have time to read through the whole article, you can check out our short version below.

• Know the different types of Financial Advisors (FAs) in the market
• You must be able to trust your FA
• A good advisor must understand your needs, know the various financial products well and be able to recommend the suitable solutions.

Some of us may appreciate getting some relevant financial advice, but how do we feel about engaging a financial advisor?

The term “financial advisor (FA)” may mean something different to everyone – a person who is licensed to sell insurance products, a banker you met at a branch that advises you on investing, or a certified personnel who gives you advice on optimizing your tax returns to helping you with estate planning.

Let’s just say that all the above is correct. Within the term, there are indeed different types of FA providing various services. But one thing is for sure – no matter which type of FA you engage, you want to be able to trust and have confidence in them and their advice.

Types of financial advisors

• FA from insurance companies

Perhaps one of the most familiar for most of us are FAs from insurance companies. This type of FA usually represents a single brand of insurer, and he is only authorised to sell products from this firm. We refer to them as a tied agent. They are also sometimes called a financial planner.

• Independent FA

An independent FA is similar to the one above, except that they can provide advice on the products from at least four life insurance firms. Some may prefer them as they deem having a wider range of products to choose from an advantage. Besides insurance, they may also offer financial advisory advice on investment products like unit trusts and retirement planning services.

• Bank relationship managers

You could have the impression that you need to have a certain amount of money (6 figure-sum) before the relationship managers (RM) would even talk to you. Well, this is no longer the case. If you have been to a bank branch recently, you might have seen some bank staff coming to talk to you while you are in the queue. These RMs are FAs as well, and can usually provide advice on a wider range of products, including savings, home loans, insurance and investments.

• Online platforms

In recent years, we’ve seen the emergence of online platforms that provide segmented planning (e.g only insurance planning or only investment planning). To use these platforms, you will generally have to be quite financially-savvy and to at least know the products you are considering. There are of course, pros and cons to having a software dole out financial advice. Perhaps there may be less obligation to buy products due to social pressure, but some may prefer the human interaction and the assurance that there’s always a customer service officer to turn to when needed. As such, some of these online platforms boast of offering a hybrid service combining algorithm-directed portfolio services coupled with human interaction capabilities.

Selecting a financial advisor

Selecting a good financial advisor is more than just looking at qualifications. A good advisor must understand the customer’s needs, know the various financial products well and be able to recommend the suitable solutions. Here are 6 key considerations:

1. How much financial advice is needed

Each of us probably has varying levels of financial literacy and will therefore need different levels of advice. Do you already have your financial plan worked out and only require access to certain financial instruments? Or you are unsure about where and how to start financial planning? Thinking through this question can help to narrow down which type of the above FA can fulfil your requirements.

2. Credentials and track record

The first time you meet with your financial advisor, make a note to ask about their credentials – the type of certifications, years or experience, as well as their track record.

3. Range of solutions provided

If you are looking at a more holistic suite of financial instruments, do your due diligence and find out which financial institutions offer such advisory service and/or tools. At DBS, the NAV Planner is a an advanced digital tool that offers personalised tips and advice on savings and protection, as well as appropriate solutions to make your money work harder for you. Its wealth planning managers are also empowered to help you navigate your financial journey through life to achieve financial wellness.

4. Trust

As you will be revealing personal information about your finances, life circumstances or even information about your family, it is important that you can trust your FA. Other than having financial knowledge, this person should ideally be ethical, possess the ability to empathise, and communicate the solutions to you in layman terms.

5. How an FA is remunerated

There are typically three ways in which FAs are remunerated. They can either charge a fee, earn a commission from the financial products that you bought or invest in, or paid a salary by their employer. Some of them might also earn a fixed salary with additional commission.

6. Level of service required

Are you looking for someone who can help you map out your financial journey, and recommend the right solutions as your life change and progress? Or are you simply looking for personal access to buying the financial products you want? Do you need the human touch – someone to call or meet, or do you prefer executing your financial decisions through the click of a mouse?

With these in mind, you should now have a better idea of what to consider when selecting an FA. In part 2, we will talk about what is expected during the financial advisory process.

Before meeting your FA

The first meeting with your FA will most likely be a get-to-know-you session. Before you meet your FA, you can facilitate the process by thinking through your financial goals and needs. Some questions that you might want to ask yourself include:

• Is your income protected in the event of illness or accident?
• Is your family financially-sufficient in the event of unfortunate incidents (e.g. illness, accident or death)
• What are the savings goals for your children’s education?
• Is your money working hard for you? What is your risk profile?
• What are your retirement goals?
• Have you set up a proper estate plan?

Think through these questions and you can share it with your financial advisor when you meet him/her.

Financial Advisory Process

Beyond introduction and informing you about his credentials and what products he can recommend, all FAs in Singapore are supposed to go through a Financial Needs Analysis (FNA) with their client. This means that they’d need to ask you some questions in order to assess your financial situation and what financial needs/gaps you could have.

The information your FA will ask may be very personal - financial objectives, employment status, liabilities, assets, existing insurance coverage and your current investment portfolio. It is important for you to be as transparent and as truthful as possible for the FNA to be useful. However, if you are using a digital advisory service, then the information you need to provide might be less detailed.

Depending on your FA, he might make certain recommendations on the spot, or take a longer time to get back to you with a more comprehensive solution. Before buying any products, you might want to consider the following:

• Is the FA able to help you build a comprehensive personal balance sheet so that you can see how one financial decision impacts other areas of your financial plan?
• Ask questions about the recommendations – why he is recommending the products and whether they address your financial needs
• Understand your financial commitments for buying any products – is the commitment sustainable for you in the long term?
• What is the free-look or cancellation period of the products?
• Make note of the costs and fees you will be paying for the products – are there alternative ways to buy them in a cheaper manner?
• What are the risks of the products – is your capital guaranteed?
• You do not have to buy or sign anything on the spot – you can always ask for time to read and study the product information and discuss it with your family before buying.

Always remember that you should not feel obliged to make any purchase. Try not to lose sight of your financial goals and only buy or invest in products that serve your needs.  

What to do after the meeting

Congratulations on taking the step towards your financial goals! Once you’ve considered the recommendations and bought the products you need, it’d be useful to keep all the information in a folder which you can easily review when you want to.

Do note that the FNA reflects your financial situation at a certain point of time. Your financial advisor should follow up with you at least once a year to review your investments. You might also want to review your protection needs when life circumstances change, such as when you get married, becoming a parent or a career change. 

Remember, managing your finances should be a process, not a one-off solution. This is also why choosing a good FA is important – one who will grow and accompany you in your financial journey for the long-term.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.