Re: Best Financial Advisors
Mercman,
You make a very good point.
It should be obvious that the size, brand or perceived reputation of an organisation has nothing to do with the competence or integrity of the advice.
I have read many posts on askaboutmoney where the poster has assumed that the advice from their bank will in some way be better or more reliable than that from an independent adviser.
I think we need to expose this one for what it is first of all.
If I am in the market for a new car and I go to a Ford showroom what is my expectation? That I am going to receive impartial advice? That the guy in the suit is going to ask me my requirements and say "oh you need a Renault. Here let me give them a call for you"
Of course not. The Ford salesman is paid by Ford to sell you a Ford.
Financial services is no different. If you want impartial advice. You have to pay for it. This means you need to go to an adviser who is Independent. By that I mean simply one who has no vested interest in selling you a product in order to earn a commission.
If you want impartial advice - and really why wouldn't you? You need to pay a fee for it.
Now this is going to be controversial but let's throw it out there anyway.
For the avoidance of doubt, this means that an Authorised Adviser who can provide advice from the whole market is NOT Independent - if they are paid a commission to sell products.
“Consumers rely heavily on advice from intermediaries, although they have almost no understanding of the costs of obtaining this, and are unable to gauge its quality. Moreover the advice itself is often compromised by the incentive effects of commission paid by product providers.” HM Treasury review into medium and long-term savings in the UK July 2002
The bottom line is that commission-based advisers get paid a different amount depending on the course of action they recommend to their client.
They then get paid a different amount depending on the type of product they suggest and even the actual product provider they select as being the most appropriate.
With this system, where the client wants the best advice yet the adviser could be paid significantly more for providing inappropriate recommendations, there is inevitably a conflict of interest between the client and the adviser.
Now, you also raise another important point.
What are our expectations of a financial adviser?
You went to a "particular very very large Financial Institution as their funds have won many awards"
Who awarded those awards? The fund management industry or the clients in those funds?
As a Financial Adviser initially most people I meet are looking for me to give them a share tip, to tell them where I think the market is going or which investment fund manager is the best.
These people have taken to heart the message that most of the Financial Industry has put forward for decades: giving investment advice boils down to making a forecast. They want an adviser to look into a crystal ball and predict the future.
Obviously, this can't be done.
Will some fund managers beat the market - yes of course from time to time a fund manager will beat the market. Can I reliably predict for my clients who these managers are going to be, in advance? No of course not.
A good financial adviser will help their clients to make smart decisions about their money. Speculating about the future is not a smart decision. The future is uncertain.
The good news is that you don't have to forecast in order to have a succesful investment experience. You don't have to pick the best shares or identify which manager will outperform whom.
A good financial adviser, in my opinion, is someone who takes time to understand their clients needs, objectives and goals. Understands and educates their clients about various risks and rewards. Works for a clear transparent fee. Considers the client's needs holistically in terms of cash flow management, tax planning, legal structures etc.
When it comes to investment advice there are many firms who over -promise and underdeliver. As I have said on a number of posts recently - you don't need to speculate in the markets. If you understand the markets you simply need to participate. The most important factor is the extent to which you participate.
Financial advice in the context of investment advice is therefore about asset allocation.