Investment 101 – are you asking your advisor the right questions

Today’s investor has far more information at their disposal than 10 years ago. While access to information can have a great impact on an investor’s ability to harness the power of the market, the challenge of wading through the vast amount of information that is available can also be overwhelming.

According to Scott Field of FedGroup, “We live in the age where questions can be answered and information accessed from anywhere in the world at the push of a button. The problem with this information is that it is generally complicated and difficult to understand, however for an investor it is crucial to understand this information in order to grow their wealth that has been created over time.”

Investment management is a critical component to harnessing your wealth for future growth. While there are a number of individuals that offer financial planning and advice, Field believes that there are some simple fundamentals that if followed will ensure your ‘financial planner’ is offering you a comprehensive wealth management solution.

Financial planner fundamentals:

· A FAIS licence?

o All financial planners have to display a copy of their licence at their office. This licence shows what type of products the financial planner is licensed to advise you on.

o If you are looking to invest in a unit trust you need to make sure your financial planners is licensed to give advice on unit trusts.

o Ask to see a copy of their licence and ask them what products they are license to advise you on.

· A Financial Needs Analysis (FNA)

o Your Financial Planner should perform a FNA to determine your financial needs and your risk profile.

o Based on this analysis he/she will recommend products in which you should invest.

· Product Options:

o Always ask for a second or third option: don’t always accept the first product he/she suggests.

· Understand the product:

o Consider the returns over the past 5 years

o Understand what fees are charged by the product supplier, fees are often difficult to understand, as they are disclosed in many different ways.

o Understand what costs are charged, some products don’t have fees but they charge costs.

· Understand the commission paid to your financial planner

o Your financial planner needs to be paid for the advice that he/she has given you. Your financial planner normally receives commission on the product that he/she has advised you to invest in.

o Ask what percentage commission you financial planner will receive.

o The commission normally comes off your returns (for example if the product is paying 10% per annum and the commission is 1% you will only receive 9% each year)

o Some products like Participation Bonds pay the financial planners commission for you (for example they rate of 10% per annum is after the payment of the financial planners commission and you will receive the full 10% each year).

“When structuring an investment portfolio two questions that normally arise are what are my financial needs and what financial product can I use to fulfil those needs,” he says.

“Investment decisions should be done with the proper planning and advice provided. It is important to have a relationship with your financial advisor and ensure that they have an understanding your financial needs and are able to assist you in determining the right solutions to grow your wealth,” concludes Field.