Thursday, October 8, 2009

Independent Financial Advice

I read this article from Asia One regarding the rise of independent asset managers.

It seems that very soon, it might be possible for clients to choose independent asset managers who charge a fee for advice instead of bankers who earn a commission from the products they sell.

These independent asset managers should be differentiated from the independent financial advisors (IFAs). IFAs are not truly independent as they still earn based on the commission of the products they sell. Only some IFAs charge clients based on a fee for advice.

A greater number of people prefer to work with independent managers rather than bankers because of potential cost savings and most important of all - independent advice.

The recent Lehmann fiasco and stuff have warned consumers that banks might not always have the customers best interests at heart. This is especially so when there is a potential conflict of interest as the banker seeks to enrich himself by selling high commission products.

In my opinion, ethics should also be placed as a far more important trait than knowledge. Better to work with someone who has ethics instead of knowledge.

A person who acts with integrity will give you the best advice that is suited for you. A person with good knowledge but without any ethics might recommend financial products that are not suited to your needs.

I dug out this article from Smart Investor which I read sometime back in November 2008. The advice in it is timeless. The title of the article is "What to Ask When An FA Recommends A Product."

Do bookmark this page so that you know what are the questions to ask the next time a banker or insurance agent recommends a product to you.

These are the questions to ask before purchasing any financial product from anyone:

1. Why is this product suitable for me?

2. What type of product is this? Is it a whole life policy, unit trust or structured depost? Is it for savings, investment or insurance protection?

3. What benefits does this product offer? Which benefits are guaranteed and which are not?

4. What instruments does the product invest in? How risky are these underlying investments?

5. Is this product suitable for individuals with low, medium or high risk profile? What is my risk profile?

6. How much do I need to commit to this product? Is it a one-time payment or regular payments? What is the penalty if I am unable to make the payment?

7. How long must I stay invested? What are the penalties, restrictions and procedures if I decide to liquidate some or all of my investments earlier?

8. What are the fees and charges? Will there be changes in the fees in the future?

9. What alternative products offered by the same company has similar benefits? How does the recommended product compare with alternative products?

10. Are you licensed to sell me the product? Who can I find if you are no longer working in the industry?

11. Can I monitor the performance of my invesment? How? Will I receive reports and updates on my investments? How often will these updates and reports be?

12. Is there a free look period if I decide after signing on the dotted line that this product is not suited for me? Can I get ALL my money back or are there certain penalties?

In simple words, always ensure that you understand the investment product before purchasing it. Understand why you are buying it and how it fits into your overall financial plan. Take time to consider whether this product meets your needs before finalising your decision. Do not feel pressured to make a decision or make a decision on the spot when you are not prepared for a long term committment.

1 comment:

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