Planning to meet with your financial adviser to review your financial position?
Jaco Prinsloo, certified financial planner at Alexander Forbes, outlines some questions you should ask.
Am I sufficiently covered?
Just like insuring your car against a loss or damage, you also need to insure your life and your ability to generate an income. Your financial planner can assist you in setting up a personal insurance policy to protect you against the loss of income or life. You can use the proceeds from the policy to replace your income or take care of your loved ones when you are no longer here to provide for them.
A good financial adviser will warn you if you are overinsured, as this leads to paying unnecessary premiums that could be better used elsewhere.
Am I invested according to my risk profile and goals?
Knowing your risk profile will help you determine your risk appetite to reach your investment goals. You might like the safety and security of money market funds, but saving for retirement using money market funds means your money will not grow fast enough.
You exchange the risk of your money fluctuating with the market with the risk that you will not be able to retire due to insufficient savings. Your financial adviser can help you find a balance between your comfort level and your investment goals to make sure you sleep well at night while being able to retire one day.
Are my investment goals on track?
Your investment returns must be secondary to your goals. Ask your financial adviser to give you a future cash flow projection for your goal to see if you are on track. Although the projection is just an assumption, it will give you a target to aim for.
In addition, if you need to make adjustments, your financial adviser can help you find a cost-effective and tax-efficient solution to meet your investment goals.
What fees am I paying?
Some investors believe that they are not paying any fees or that there are no costs associated with their investments. However, reinvesting dividends, issuing statements, and buying and selling shares all come at a cost.
Ask your financial adviser what your effective annual cost (EAC) is. This will show you the total cost of managing your investment. If you are paying above the industry average, ask your financial adviser to help you to explore alternatives. With investments, you get what you pay for. So do not always look for the cheapest option – look for the option where you believe you could get the most value for your money.
How is my financial adviser doing?
As you will be sharing personal information about your finances, building a trusting relationship with your financial adviser is essential.
To ensure you receive up-to-date and current advice, remain current with industry changes. Do not be afraid to question your financial adviser on these developments and the potential impact on yourself. An informed decision will give you the trust and confidence to act on any advice provided by your financial adviser, as you know it is the best for you.
Our emotions and feelings are often our worst enemy when it comes to personal finances. Your financial adviser cannot pick the next hot stock or make your debt go away. But they can save you from making emotional decisions and provide you with the support to reach your goals.
Schedule that meeting with your financial adviser – and if you don't have one yet, there's no time like the present.
Questions may be edited for brevity and clarity.
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