There are few terms that cause more confusion than "financial adviser." To some people, it may simply be the well intentioned advice from friends, family or an acquaintance who just happens to have a hot tip or the next big thing in business for you to invest in. Given that the road to many a troublesome place has been paved with the best intentions, it may be best to stick with advice from the professionals.
But, who are the professionals?
When a decision is made to get one's financial house in order, to whom does one turn?
"The default position for many people is that they go to their banker, because they don't have a personal accountant as an individual," said Winston Williams, a Pan American agency head and financial adviser.
Most people, he said, end up at their banker as the first port of call when they want to purchase big ticket items.
When many people reach this point, Williams said, it is usually the first time they are putting their financial lives into perspective.
"At the bank, what you do is something called a PFS–a personal financial statement–and that very often, is our first introduction into this whole idea of what is our financial position. But, in terms of a financial plan which tends to look at short-, medium- and long-term goals, people often have zero information on how they go about doing that."
As implied by the above, the financial plan plots financial achievement along a timeline and puts a dollar amount to these outlined goals. The person who helps you do this therefore becomes a focal point of your financial life.
"Depending on that relationship, invariably as I see it, it grows to become a relationship that is more than just money," said Williams.
This is because the financial adviser's job, according to Williams, is to help people actualise their dreams and, to do this, his job is to ask questions and help people arrive at the answers.
But first, those looking for a financial adviser need to ask some questions of their own.
The referral
Carlyle Fletcher, a lifetime member of the Million Dollar Round Table, financial adviser, sales trainer and public speaker, said the financial services market in this country is like many others, done by referral, with those seeking advice asking friends and relatives.
"How do you find a hairdresser?
"Who do you use as your hairdresser?
"How do you find a seamstress?
"It is the same approach. It is the same things that we do in our business. Who do you know?"
Or even more likely, a financial adviser may find you.
Fletcher said many advisers are referred to new clients by someone who already uses their services, or may approach you based upon observation.
"We look to see whether someone is building a house, a business place is going up, we can stop by and find out who the owner is. Some agents who are brave enough will do what we call cold calling or unplanned sales calls where they just walk up to you and we say: my name is Carlyle Fletcher. I have some ideas and I would like to share them with you."
Fletcher's use of the word "agent" hints at an important fact about this market: most financial advisers are tied to insurance companies.
Williams estimated this was true in at least in 99 per cent of cases, but said this was not necessarily a downside.
"Invariably, there is always the question or the suspicion that the final discussion will result in the sale of the product from the companies for which they work. It is not unusual to find that happening, but the reality is that many financial issues we have can be solved by insurance products."
So, in this vast field, how does one pick an adviser?
Williams said: "I would look to people who are qualified in financial planning.Those are people who have the designation CFP, Certified Financial Planner, or people who have the CLU, Chartered Life Underwriter and you also have the CHFC, the Chartered Financial Consultant. These are people who have some sort of certification in terms of understanding the financial planning process."
Then come further questions.
Williams said the potential client may want to ask about the adviser's background.
"Once you've identified people with the relevant financial planning certification, you then question them. How long have you been in the business? Do you work for commissions, or fees, or a blend of commission and fees? Is your recommendation going to be simply limited to the proprietary products of the companies to whom you are contracted?"
After being satisfied with the financial adviser's credentials and experience, there is the actual financial planning process to undergo.
Williams said that on the first meeting the adviser and his potential client will want to establish the scope of the service required and clarify the financial goals to be met. This is the first step of the process. The second is to gather data.
Fletcher gave an idea of what this might entail.
"We look at the person's personal information. We look at family information. Are you married? What's your spouse's name, occupation and income? If they have children, you would want to know the children's names and ages. Then you want to know if the person has any insurance in force and the details about it. Other than that, then we go onto some financial information, which would look at what the person owns. The accountants would call that your assets."
The financial adviser then analyses the data, develops a plan from it, which the client then implements to achieve his goals. In the final step, the plan is then monitored and reviewed and may be adjusted according to the client's circumstances.
"Life changes. You and I can sit down today, and I can say let's build out this plan and then you say, well I am thinking of something different," said Williams.
"Let us say, for example, you are going to make education your next priority. Or you got married or found out that you were pregnant, as soon as things change, you have to pick up the phone and say a couple of things are happening."
Williams said if the potential client didn't get a sense that these steps were being followed, then they may not want to give the financial adviser their business.
Fletcher said that advisers, as a best practice, also had fiduciary responsibility toward their clients.
"We are supposed to put the interest of our clients and our policyholders above and beyond our own and carefully ensure that any advice we tender them will be without regard for our own personal advantage."
"You may find some practitioners just selling products, meaning that we have this product, it's good, that kind of thing. But what I am thinking, is that we have a responsibility, you and I, to educate the public. So that even without a practitioner they can look at their financial situation and say, 'listen, these are the things I need' and then they can call in a practitioner to help them figure out the best way to solve the problem." said Fletcher.
Expanding this point, Williams said: "That's the perspective a financial planner will give you. It has nothing to do with products. Products are the last thing we talk about. The only thing that will consume 90 per cent of our time are the dreams, that we now want to convert into goals. We compile all of this information into what is the best road and then what are the best products that will allow us to get there."
Williams also said a financial adviser does not act alone, but is at the centre of a group of individuals with relevant skills helping the client to realise their dreams.
"True financial planners are never individuals who have all the answers. True financial planners have a network of people with whom they work to develop and deliver something that allows you to achieve the goals you have set for yourself. If you came to me, I would have a banker that I deal with to help you with things you need, because I am not a banker. I will have an attorney to help you build a will, or establish a trust because I am not an attorney. I will have an investment broker to help you develop a portfolio of investments that will help you satisfy one or more goals at different times and in different amounts."
Good financial planners also continuously improve themselves.
Fletcher said, in addition to obtaining their initial license, financial advisers must obtain "education credits" every two years to keep it.
"We want to make sure that someone doesn't get a licence 40 years ago and never does anything, doesn't keep up to date. This is what will ensure that the practitioners can meet the required standard of the public."
There is a significant amount of self regulation within the financial advisory sector. In the event that a member of the public has a complaint to make against a financial advisor, there are internal systems to treat with issues that arise.
"Each company will have there own what we call things like ethics committees, whereby this matter can be dealt with," said Fletcher.
Beyond that, there is the financial ombudsman, which operates as part of the Central Bank.
"Members of the public who feel they have been prejudiced, have that opportunity. First and foremost however the company will do their own investigation, because it is in their own best interest to do so. It is in our own best interest to weed out people who would give this industry a bad name."
Williams also had a warning about financial advisers who promised guarantees of high returns.
"You want to run very far from anybody who can give you a guarantee of a much better rate because in the real world, the market decides the price and nobody can give you any guarantee whatsoever of any return."
He said while there were investment instruments that performed consistently well, potential clients should always pay attention to what Williams termed the risk/return trade-off. The higher the return, the higher the risk.
Ultimately, a relationship and trust developed over time between the client and financial adviser is the aim.
Williams, for example, spoke of clients who were now sending their adult children to see him to have financial plans drawn up for them.
"I think the financial planner should be the centre of your financial life."