Why you need a financial representative, and how to suss out a good one

There are some things in life where Do It Yourself (DIY) can be a bad idea: like plumbing, car repair, and - if you’re not financially savvy - toying with stock markets or exotic investments.   When it comes to planning for major milestones, like your first child, your first home, or your retirement, it’s essential to get it right the first time. This is where a qualified financial representative comes in, but you do need to also pick the right one.

The first reason is that there’s no “one-size-fits-all” solution to personal finance. You can’t use Google to magically tell you how much you need to save for retirement, or how much health insurance coverage you need.

The number will differ based on your age, the number of dependents, income level, aspirations, and hundreds of other lifestyle needs. Some people can retire on just $1,000 a month; others may need three or four times that amount.

The role of a financial representative is to look at your unique situation and tailor an approach that is designed for you.

The second reason is that financial planning tends to require long-term relationships. You can’t just use an online calculator to determine how much to save and invest one time, and then stick to that your entire life.

As you grow older, your needs will change. You may need a higher amount for your retirement goals; or you may need to shift from wealth accumulation to wealth protection, as you near retirement.

Finally, having a financial representative can bring you peace of mind. If you don’t understand financial markets well, DIY investing can be stressful – worrying about market movements all the time and your emotions may get the better of you.

Financial representatives can assist in vetting investment options, as well as building a portfolio that matches your risk appetite. They also handle issues like portfolio rebalancing, to take the stress off you.

If you’re a busy professional, it may be more productive for you to focus on completing projects and getting ahead, than on monitoring your portfolio all day. In this sense, financial representatives free up your time to focus on areas where you’re most talented, or most passionate.

How do I spot a good financial representative?

Here are some questions you can ask, to find the right representative:

1. Can you invest in a way that matches my values?

This ensures that your financial representative has moral or ethical standards that align with yours. For example, many investors today focus on impact investing, with Environmental, Social, and Governance (ESG) standards.

A financial representative can tailor your portfolio so that you invest only in green companies, or so that you avoid putting your money in vice industries such as tobacco or alcohol. Investors with humanitarian aims may require that none of their money goes into firearms industries or companies with poor labour practices.

If you’re a celebrity or business owner, having a financial representative who grasps your values is vital. Imagine the fallout if you’re a spokesperson for anti-smoking ads, but someone later discovers your portfolio includes tobacco companies.

If your financial representative doesn’t agree with your values, or feels they can’t effectively invest with these restrictions, find someone who is better aligned.

2. How much time do you have for me?

A financial representative who is overburdened with clients may not be able to give you much time - any consultations may be “touch and go”, and your calls or texts may go ignored for days.

This isn’t to say every financial representative with a big client base is bad (it may be a testament to their success). It’s just that you need to ensure they value your relationship. A good financial representative will consult with you on a regular basis, and explain formulaic or calendar-based rebalancing of your portfolio.

They should also be prompt with simple issues like insurance claims, or questions about fund performance.

3. What are your fees and commissions like?

Good financial representatives are upfront, and transparent about how much they earn. They should be able to clearly explain any commission that they’re getting; as well as the impact of various fees and commissions on your overall portfolio performance.

In the event, a financial representative recommends another professional (e.g. they direct you toward a particular mortgage broker for your home loan), they should immediately disclose if they get any commissions from it.

This being said, bear in mind that the cheapest financial representative is not the same as the best financial representative. The issue is not so much whether they’re cheaper, but whether they’re sincere and transparent. A good financial representative can deliver much more in returns than they charge.

4. Can you explain what’s in my portfolio?

A good financial representative should have an in-depth knowledge of what exactly you’re invested in.

They should be able to explain your asset allocation (e.g. 70% in equities, 20% in bonds, 10% in cash), and why they have chosen that particular allocation. They should also be able to explain how the asset allocation matches your risk appetite.

Besides this, your financial representative should be able to explain the portfolio’s level of diversification (i.e. how lowly-correlated your assets are), and how susceptible you are to various risks, such as inflation rate risk, interest rate risk, and so forth.

Finally, make sure you can understand your financial representative’s explanations!

Good communication is essential when it comes to financial planning. If you find you cannot understand what your financial representative is saying, despite their best efforts, it may be time to search for someone else.

It’s not fair to you if you end up investing in things you don’t understand; and issues such as language preference can end up complicating the process. In these instances, don’t hesitate to find another professional.