The widespread mis-selling of expensive investment products has been a concern for the UAE Investment Authority over the past few years. Failing to carry out proper research on financial advisors puts customers at the risk of receiving unsuitable financial advice, choosing an option that is not in line with their financial objectives or being outright duped at the hands of overpriced professionals.
Deciding on an advisor can be both overwhelming and intimidating. Look for a licensed and regulated financial advisor, following a proper code of ethics.
Should You Manage Your Money or Hire an Advisor?
When deciding whether to manage your own finances or hire an advisor, you should weigh out the pros and cons in order to take an informed decision. While it is true that you know your money and financial goals best and would like complete control over it, there is no substitute for expertise. Seasoned professional advisors have the knowledge to dramatically improve your investment implementation. In addition, outsourcing the work to a professional can alleviate the stress that can come from managing your own finances.
It should be noted that it is equally important to get professional guidance, knowledge and research of financial products on the part of the client as it goes a long way in building a secure relationship with the financial advisor.
How do Financial Advisors Make Money?
In order to understand where their loyalties lie, it is important to identify how your financial advisors are getting paid. Here are the two most common types of financial advisors and how they are compensated for their services:
- Comprehensive Financial Planners– They deal with multiple aspects of financial planning and follow a fee-based compensation structure. They offer financial advice and investment management to their clients for a flat fee or a percentage of assets they manage.
- Investment Brokers or Insurance Agents– These are employed by a financial institution and follow a commission based compensation structure. For this reason, they might insist on products that offer them the best commission irrespective of whether it’s a good option for their client. The temptation of commission can influence their recommendations.
The Checklist to Choosing a Financial Advisor
A Credible Financial Advisor:
1. Understands your financial situation and objectives.
2. Is able to justify his investments and offers clear-cut answers.
3. Is clear about his remuneration.
4. Is accessible.
5. Keeps you up to date about your investments.
Be skeptical of financial advisors who:
1.Talk about guaranteed returns or zero risks.
2. Are ambiguous about their source of income.
3. Are interested in pushing a particular financial product.