Stuck in the dark? Five signs your financial advisor isn’t working for you

Financial advisors in the UAE have a mixed reputation, and with good reason.

Unauthorised and unqualified advisors are rife, and many clients have been hit with painfully high upfront management fees; or found themselves locked into unsuitable agreements with expensive exit penalties.

According to a Financial Times article in 2016, more than 10,000 financial advisors left the UK in the period 2011-12, partly to avoid the new tighter regulations being imposed by the UK regulator. Many went on to work in high-earning expat and wealthy retirement communities across the world, where the rules around selling financial products were not always as tight as standards back in the UK.

Against this background, it’s not surprising that people using financial advisors in our region are becoming increasingly careful when it comes to choosing between them. But how can you be sure you’ve hired a trustworthy, suitable advisor? More importantly, how can you spot the signs that your advisor really isn’t working for you?

1. Lack of communication: When it comes to financial advisors, a lack of contact can be frustrating, tiring and unnerving. Is your advisor delivering the level of communication they originally promised? Are they responsive? Are they proactive? A good advisor will give you important updates and information about your earnings, and take the time to answer your questions. If you can’t get hold of them via email or phone – or constantly have to chase up replies – you might want to consider whether they’re the right advisor for you.

A good advisor will give you important updates and information about your earnings, and take the time to answer your questions.

2. Lack of transparency: In an article published recently in the Journal of Empirical Finance, researchers Kyre Dane Lahtinen and Stephan Shipe found that, for the average person, investor advisor disclosures are often difficult to understand. And they’re becoming less understandable over time. This growing lack of transparency is dangerous for clients. It can lead to misunderstandings about conflicts of interest, fee structures, and even the advisor’s background. So watch out for advisors who give advice that seems excessively complicated or ambiguous. A good advisor should be able to give you a clear picture of where your money is going and why. Be wary of those who seem deliberately opaque, and always demand further explanation if something is not completely clear.

3. High charges: An advisor should be upfront about their fees, and make absolutely clear what you’re paying for. Although it might be hard to calculate exact figures, they should be able to give you a reasonable quote or an upper limit, so you know what to expect. Financial advice can be costly, and it’s worth gathering a few different quotes for comparison. If one quote seems unusually high, ask yourself whether there’s something else influencing the price: for instance, particular investment products which may be complex or not easily tradable.

4. Uncomfortably high risk: A financial advisor should offer a range of investment options and risk thresholds to suit your needs, without any sense of coercion or obligation. Don’t be persuaded into investments that you aren’t comfortable with, and be cautious with those who promise high returns with little or no risk. As Liz Davidson, CEO of Financial Finesse, points out, if a proposition sounds too good to be true, it probably is.

5. A one-size-fits-all strategy: The purpose of a financial advisor is to create tailored strategies to fit your circumstances. As a new client, whether you’re a retiree, young worker or new parent, your advisor should be working hard to get to know you, asking enough questions to really uncover your needs and long-term goals. If they show little or no interest in your current or future circumstances, they won’t be in a position to offer truly personalised advice, and you’ll be left with a one-size-fits-all plan or product which is unlikely to match your specific needs. 

Finding a new advisor

Changing your financial advisor needs careful navigation. You might be lucky enough to have recommendations from friends or family members. But the chances are you’ll need to take on the difficult job of finding a trustworthy, affordable advisor on your own. So what qualifications and qualities should you look for in a new advisor? And why are these qualities important for you and your business?

What qualifications and qualities should you look for in a new advisor? And why are these qualities important for you and your business?

Qualifications: Your advisor’s qualifications and experience are a more important priority than their personality traits or persuasion skills. So always check their credentials before signing. There are a number of accounting and finance degrees and diplomas to look out for, many of them legally required. Don’t choose an advisor without the relevant qualifications and licenses. For financial planners, always pick those who have earned a CISI Investment Advice Diploma qualification as a minimum, as well as the Certified Financial Planner (CFP), Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) or Chartered Financial Consultant (ChFC) certification. Avoid dealing with anyone not operating under a licence – you’ll have little protection if things go wrong.

Experience: Just as important is the amount of experience your advisor has under their belt, particularly in their area of specialism. Many people choose advisors from bigger companies, as they tend to have a longer track record and can draw on a wider portfolio of skills from in-house training and development schemes.

Credibility: You can find out about your advisor and their company in a number of ways. Your first port of call should be to check their records with the local financial services authority. In the UAE this will likely be either the UAE Insurance Authority, the Emirates Securities and Commodities Association (ESCA) or the Dubai Financial Services Authority (DFSA). Also seek out third-party sources and reviews (for example newspapers, magazines and websites), and search for any negative associations by typing their name into a search engine along with keywords such as ‘fines’, ‘scams’ or ‘fraud’.

Personality: If things go well, you’re likely to be working closely with your advisor over many years – hopefully even a lifetime. So you need to make sure you trust and like them. Always meet your potential advisor beforehand, to ask questions, establish rapport, and assess whether they will communicate with you openly and honestly. Above all, trust your gut instinct. Steer well clear of those who appear elusive or seem to be delivering a sales pitch. 

Before you begin

Once you’ve found a new advisor, it can be tempting to sign up on the spot. But whether you’re looking to buy a new house, invest in shares, or save for retirement, you need to start with clearly defining your requirements, running through some checks, and asking some key questions. 

Fee structure: It can be difficult to pin down the exact cost of financial advice, but it’s important to understand your advisor’s fee structure so you can assess the value they’re going to add, and their motives for working with you. Find out how they structure their pricing, and whether there’s an upfront fee, or any penalty for early withdrawal. You also need to make an important choice between fee-based and commission-based advisors. Fee-based advisors charge either a specific amount for a particular service, or an annual fee calculated as a percentage of the assets they manage (usually around 1%). Commission-based advisors, on the other hand, often get commissions on investment transactions, which can actually affect the degree and nature of the advice you get.

A 2013 LSE study published in Science Direct found that changing the amount of commission received by financial advisors had a big influence on the take-up rate for insurance products. So always ask your advisor whether they get paid (or receive any other benefits) for selling you a certain product, or for referring you to another person or business.

Long-term plan: Financial advice can make a real difference to your financial returns in the long term. Research from Morningstar shows that the impact of making more intelligent financial planning decisions – on things like tax-efficiency, minimising liabilities, and a withdrawal strategy – can yield significant additional returns. Morningstar found that these financial planning elements could improve a portfolio’s return by as much as 1.59% per year, raising overall retirement income by over 20%. But in order to benefit from these gains, you need to know how your advisor plans to use your money. Some of the questions you’ll need to ask will be specific to your individual situation, but don’t be afraid to quiz them on their long-term strategies, and how they keep up to date with tax, regulatory, and market changes.

Research from Morningstar shows that the impact of making more intelligent financial planning decisions – on things like tax-efficiency, minimising liabilities, and a withdrawal strategy – can yield significant additional returns.

Communication strategy: Like any relationship, the key to a healthy advisor-client rapport is communication. Particularly if this is the first time you’ve had an advisor, it’s important to establish the right level of control and communication, and make sure you’re comfortable with it. How often do you want to be in contact with them? Are you happy to be quite hands-off, speaking once each year or quarter, or do you expect more regular interactions and involvement in all decision-making? Understand and agree the way your advisor communicates, how they make decisions, seek approvals and communicate changes with you. All these elements will determine whether or not you’re a good fit for them as a client – and vice-versa. 

A complete picture

The importance of choosing the right financial advisor can’t be overstated. Finding the right balance of cost, value and comfort can be difficult, but if you do your due diligence and assess your potential financial advisor thoroughly and carefully, you will reap the rewards in the long run. Once you’ve found the right advisor, it can be the beginning of a successful lifelong relationship.