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Investment Suitability – The Questions Every Adviser Should be Asking You

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Many investment mis-selling complaints made to the Financial Ombudsman Service are related to inadequate investment advice. Customers report that their financial adviser did not provide them with a full range of options, or suggested an investment product that wasn’t suited to their needs.

To avoid being in this position yourself, it’s important to ensure that the investment advice you receive is relevant, and that you’re asked the right questions about your personal circumstances before proceeding. Here’s a guide to help you.

Your Circumstances

According to guidelines laid out by the FOS, you should be asked a number of questions about your personal circumstances. It’s only through gaining understanding about your specific circumstances that an adviser can recommend a suitable investment product to you – and if you feel that your adviser is skipping over this important process, proceed at your peril!

Here’s some questions that you should expect to be asked.

  • Age – When you expect to see a return on your investment – do you need it to be short-term or longer-term? Will you need the money for your retirement, for example?
  • Amount invested – Is this an affordable amount, and what percentage of your savings is it?
  • Who depends on you? If you were to lose money, would anyone else be affected?
  • Health – Are you in good health, or might you need money for medical costs in the future?
  • Finances – What are your current earnings? Is your job secure? What other financial commitments do you have?
  • Expectations – What exactly are you expecting from this investment, and are your expectations realistic?
  • Objectives – Are you planning to use the returns for your retirement, for buying a home in the future, or as a source of income? What happens if the investment doesn’t generate the money you require?
  • Debt – Do you have any existing debt that may impact on your financial circumstances if this investment doesn’t yield good returns?
  • Attitude to risk – How comfortable are you with the risks involved? Are you aware of the worst-case scenario, and can you financially cope if the worst does happen? Are there other, less risky options you’d prefer to explore?

The Investment Itself

In addition to asking plenty of questions about yourself and your circumstances, your adviser should also be prepared to tell you all the important details about the investment product itself. Here’s a list of the topics they should cover.

  • Terms and conditions – What terms and conditions apply to this product? For example, can you change your mind within a certain period if you decide it’s not the product for you?
  • How long? – You’ll need to know how long your money will be tied up in the investment. Generally speaking, longer-term investments yield better returns, but it’s important to consider your own personal circumstances when choosing.
  • The risks – What are the risks associated with this specific product? Ask about the inherent risks, such as counter-party risk and asset allocation.
  • Best-case / worst-case scenarios – What is the worst that could happen to your money? Likewise, what’s the best outcome you could hope for? And, what can you realistically expect to get back from this investment product?
  • Extra charges – Are there any extra charges involved in investing in this product? Who benefits from these charges? Is there any reason why you’ve been charged additional fees?
  • Flexibility – Does this investment product offer any flexibility if, for example, you needed to access your money earlier than anticipated? Can you put more money into it at a later date?

Alternative Products

You should also be offered a range of alternative products to provide you with a clear comparison. If you feel that your adviser is pushing you towards one particular product, approach with caution. Some financial institutions still incentivise their staff to sell certain products, and making the investment may benefit them more than you.

Mis-Sold Investment Products – Your Rights

Remember, if you believe that you have been mis-sold an investment product, the law is firmly on your side. In recent years, thousands of people across the country have lodged complaints with the FOS, and many have been awarded compensation for their mis-sold product.

However, if possible, it’s worthwhile trying to avoid getting into this situation in the first instance. Make sure you know what questions your adviser should be asking you, and also, what specific details you need to know about the investment product, in order to make an informed decision.

If you feel confused by the information that your adviser is providing you, this is their problem, not yours. Ask them to explain with more clarity, and if they’re unable to do so, seek the help of another financial adviser.

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