When you plan to make an investment, your first step is most likely to talk to an investment adviser. But with all the stories of mis-sold investment products hitting the newspapers in recent years, it’s more important than ever to hold your adviser to account.
We’ve put together some vital questions you should ask your investment adviser to make sure they’re recommending a product that’s suitable for your needs.
1. Are you offering unbiased advice?
Ask your investment adviser whether or not they’re operating independently – as this will help you to determine whether or not their advice is completely unbiased. Remember that banks and other financial establishments will be focused on selling you their specific products, and may be incentivised to promote certain investments. They’re bound by the same laws as independent financial advisers (IFAs) so should, in theory, only offer you products that are suitable to your needs.
2. How will you assess my attitude to risk?
Some investments are more risky than others, and it’s vital not to sign up for anything that may involve you losing more money than you can afford. A good investment adviser will have means of assessing your attitude to risk. If they don’t seem interested in establishing how risk adverse you are, this should start alarm bells ringing.
3. Are you giving me a full range of options?
In the past, some financial establishments have been found guilty of promoting only certain products to their customers, without providing them with the full range of available investment options. Make sure you have the right information about all investment products suitable for your needs before making any decisions.
4. How are you paid?
An IFA will charge you a fee for his service. However, don’t be fooled into thinking a bank adviser is offering you a ‘free’ service- it’s more likely they’ll get a commission if they sell you the product, so they’re well motivated to do so! Ask them outright whether they’ll be earning more if you invest in certain products – this may make them a little less likely to push you into making unsuitable investments.
5. What qualifications do you have?
IFAs require a Certificate in Financial Planning to provide you with advice, and they also need a Qualifications and Credit Framework Level 4 Diploma in Financial Planning in order to meet the FCA’s minimum requirements to advise you on retail-level investment products. However, some may have additional qualifications and specialise in certain types of investment. Technically speaking, advisers operating in financial institutions are also meant to have training to ensure they understand all the products they sell, but it’s a good idea to ask, to ascertain their level of expertise.
6. What are the risks vs the rewards?
What opportunities does this investment product offer? What losses might you be exposed to? What sort of return can you expect, in realistic terms? What’s the worst-case scenario?
7. What’s included in the service?
Will your investment adviser manage your portfolio completely for you? How will they approach it? What is their strategy? Will they update you regularly, to let you know how your investment is performing?
8. Who else has had success?
Do your homework before committing. Find out who else has made similar investments, and how well their investments have performed for them.
Your adviser is obligated by financial regulations to make sure the product they sell you is suitable for your needs and situation. Protect yourself against investment mis-selling by asking them these questions and ensure they’re putting your interests first.