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Investments often come with overwhelming choices, new jargon and many other complexities, which can be a bit daunting to newcomers. It may be daunting, but the only way to enjoy the benefits is to start somewhere and consulting an independent financial advisor can help you improve your chances of success in the market.
Financial advisors can help you with long-term planning and they possess the objectivity and experience you need to face any challenges.
Avoiding common mistakes
An independent financial advisor will help you make decisions that are appropriate to your circumstances and goals. Their biggest boon, however, is helping you avoid the common pitfalls associated with investing on your own. These include:
- You start investing without a plan
A plan is a critical component of investment success. You need to identify your goals and know how to get there. An advisor can help you to formulate the right plan for you.
- You invest in the wrong product
There are many products available, each with their own tax structures and objectives. An advisor can help you sort through these products in order to find the right one for you.
- You forget about inflation
Inflation refers to the erosion of the value of your money with time. An advisor can find the right investment, which yields returns that offset this loss, leaving the value of your money in tact.
- You blow your retirement savings when changing jobs
Preserving your savings is essential when changing jobs (or you are retrenched). If you don’t, then it is highly likely that you won’t have enough money to retire comfortably. An advisor can help you identify your options at this critical juncture.
- You focus on one asset class or market
Diversification is one of the keys to financial success. Advisors can help you to diversify, allowing you to gain exposure to various investment options.
- You react emotionally
Investors notoriously miss time the market and tend to base decisions on emotions. This leads to constant switching, which destroys the value of savings. Advisors can help you view your situation rationally.
Questions to ask a financial advisor
Investing by yourself might be fine in the short-term, but could severely impact your success in the long-term. Not advisors are equal; therefore you need to ensure that you are comfortable before heading into an agreement.
- Are they independent?
Advisors can be independent or they can represent a particular provider. Independent advisors earn no commission off products, while those employed by providers might be incentivized to sell particular products.
Ensure that your advisor is objective and independent.
- What are their qualifications?
All advisors are legally required to be licensed. This means they must pass a regulatory exam and fulfill the accompanying morality and competency requirements. Generally advisors will need to prove that they are maintaining and developing their professional competence on an ongoing basis.
Academic qualifications also form an important part of the vetting process. Ensure that you read and understand the disclosure documents an advisor must provide. These documents will detail which products the advisor is allowed to offer and advise on.
- What do their fee structures look like?
Transparency and disclosure are very important. Make sure you understand what fees must be paid and how they work. Fees tend to be charged as a percentage of your investment and they might include an initial and ongoing fee. Some advisors might charge for advice directly. Do not pay any fees unless you’ve agreed to them.
- What can they do to help grow your wealth?
A good advisor will take the time to understand your needs and goals. They will formulate a plan to reflect your risk appetite and goals. They help you consider your options rationally and provide advice that will help you grow your investment. They should keep you regularly updated with the latest prices of unit trusts, bonds, and stocks etc. which make up your portfolio.
Finding a good, independent financial advisor
A financial advisor can help you to make some very important decisions that have a huge impact on your financial future. Finding the right advisor should be done with care. Trust is one of the key considerations. A good starting point is asking a trusted friend or colleague for a recommendation. There are also services available that can help you find the right one.