What to look out for when choosing a financial advisor

There are different types of financial advisors, offering a range of products and fee structures — make sure you pick one that is suitably qualified and meets your needs, writes Gráinne McGuinness.

'Make sure your financial planner is someone you feel comfortable sharing your goals and ambitions with — someone you feel happy to work alongside,' says Society of Financial Planners of Ireland chairman Brendan Reilly.

When it comes to making decisions about money, one of the most frequently occurring pieces of advice is to speak to a financial advisor. While there is a wealth of information and advice available on every major financial decision people are likely to face in their lives, every situation is different — so what works for one person may not suit another.

But people often don’t know where to start. I spoke to Society of Financial Planners of Ireland chairman Brendan Reilly about why his organisation recommend financial advice, and what people should consider.

“In our view at the SFPI, which is the voice of and community for financial planning professionals in Ireland, consumers should engage financial planning and guidance before making larger financial decisions, so that they understand the ripple effect such decisions can have,” he said. “Financial planning allows you to understand how each financial decision you make affects other areas of your finances.

“For example, especially in this era of negative interest rates, understanding what to do with any excess regular income, such as paying off your mortgage sooner or saving more for your retirement.” 

There are a number of different types of financial advisers which a consumer may wish to consider, defined by the Competition & Consumer Protection Commission (CCPC) as follows:

• Multi-agency intermediaries advise on and sell products from a number of different financial service providers. They are sometimes referred to as ‘restricted intermediaries’.
• Authorised advisers give advice about all financial products right across the market. They must consider and advise you on the most suitable financial product or products available in the market. They are sometimes called ‘fair analysis advisers’.
• Tied agents only advise and sell products from the financial services providers they are ‘tied to’. They cannot offer financial products from other financial services providers they are not tied to.
• Mixed-status advisers — the number of products the adviser can advise on and the number of financial service providers they sell products for varies — for example, a financial adviser might offer advice on pension products from six financial services providers, but may be tied to one insurance company when advising and selling home insurance, so can only advise and offer products from that insurance company.

The CCPC advises consumers to check the Central Bank registry of financial service providers to confirm that they are regulated by the Central Bank of Ireland.

“Consumers can access advice from Certified Financial Planner professionals, such as those listed on our member directory at www.sfpi.ie, or on the Financial Planning Standards Board website [www.fpsb.ie],” said Mr Reilly.

When choosing a financial advisor, in addition to checking the Central Bank registry, the CCPC recommends that people check what type of financial products they can advise on as well as checking their qualifications and experience.

Mr Reilly adds that it is important to find someone you are comfortable with.

“Naturally, as has been most evident for so many of us given the events of the past 12 months, both our goals and our financial picture change over time,” he said. 

“For this reason, the vast majority of relationships between financial planners and their clients are ongoing, not transactional. When it comes to choosing who you want to work with then, apart from vetting their qualifications, their experience and their reputation, make sure your financial planner is someone you feel comfortable sharing your goals and ambitions with — someone you feel happy to work alongside.”

The CCPC advises consumers to ask upfront about the fees involved.

“Check if ongoing advice will be provided, and if so, what the cost will be,” it suggests. “Also ask what other payments the financial adviser receives — eg. do they also receive commission from the financial provider they are selling products for? The first time you deal with a financial adviser, they must give you a document with full information on their charges.” 

 Mr Reilly says costs involved will depend on a number of factors, "including the type of relationship the client wants, such as ongoing or once-off, the level and type of work required, and the time involved’.

“It might also involve the advisor being paid via a combination of client fees and commissions from product providers, depending on the actions taken,” he said. “Typical fees can range from €150-€350 per hour.

“In advance of the commencement of any relationship with a new client, a financial planner will always agree both the scope of the work and the cost for same.” 

The CCPC also stresses that it is important for consumers to be prepared for the first meeting with their chosen financial advisor. It recommends people gather any documents that you think an advisor might need and bring them along with you, such as information on previous pensions you have paid into, your current or savings account statements, your current investment portfolio etc.

“During a first meeting with a financial adviser, always answer their questions fully and honestly,” the CCPC says. “It will help both you and your adviser to get a clearer picture of your overall circumstances. 

"Be sure to take notes during your meeting in case you forget something later, and ask questions about anything you don’t understand. It’s important to take time to consider any recommendations carefully.

“Be sure to ask as many questions as possible to ensure you fully understand the financial product(s) before you sign any agreement or contract.”