In search of a good financial adviser

Whenever industrialist John Gokongwei, Jr. needs advice on foreign exchange, he seeks out his best friend, former Bangko Sentral governor Gabriel Singson.

You, too, should look for a good financial adviser. Remember that good advice is not free. If you do not pay a fee, you will pay for it through the charges and commissions on the investments you make. As with any other service you purchase, the quality of advice varies considerably. Not all expensive advice is good and not all cheap advice is bad.

At the onset, it is important to establish what kind of advice can be given and whether or not the adviser is "tied" to particular companies and products. "Tied" advice is not necessarily bad advice, but it does mean that you should probably shop around to see if there are better deals to be had from other firms. Here are a list of people who can give you financial advice.

• Accountants and lawyers–they are governed by their professional bodies and are not usually "tied" to specific products. They are likely to give independent advice but, since investment or building wealth is not their main activity, they may not have sufficient specialized knowledge to find you the best investment in a given category.

• Insurance agents–they are usually "tied" to an insurance company. They are likely to have good detailed knowledge of the products they sell but may not be able to discuss competing insurance products.

• Bankers–their scope of investment advice greatly varies, depending mainly on the scale of the facilities of their particular bank. Some banks have subsidiaries involved in stock and bonds trading and have access to a wider range of specialist expertise and research.

• Stockbrokers–their services range from "execution only" (which means that commissions on transactions are low but no advice is given) to "full service" where you pay a higher commission in return for a much more personalized service.

First Meeting

For your adviser to do his job properly, he will need to have a detailed picture of your finances. Many people are reluctant to discuss details of their financial arrangements with a stranger but the fact remains that the more information you are willing to give, the more appropriate the advice will be. A good adviser will use a fact-finding questionnaire to establish your attitude towards risk and your investment objectives.

For riskier investments, such as currency and derivative trading, the adviser will need to know if you are sufficiently knowledgeable to assume such risks. In its guidelines to financial institutions, the Bangko Sentral insists that such investments are made available only to investors who can prove that they are experienced enough to handle them.

Usually, the adviser will give you a letter stating the terms of business. This should contain the following:

• insurance–if the adviser is negligent or goes bankrupt, you may be able to recover any losses by claiming against this insurance;

• mode of communication–it may be through telephone, email, or mail;

• the level of your liability–for example, if you are using leveraged investments, this clause should state the deposits required and the additional sums you may have to provide if you suffer losses;

• details of commissions, charges, and fees;

• the names of the adviser’s regulatory authority, if any–for example, banks are regulated by the Bangko Sentral while insurance companies are regulated by the Insurance Commission;

• services to be provided;

• how your money will be handled–normally, any money you deposit will be kept in a client account, separate from the advisory firm’s own account;

• a warning about the risks of the investment you may make–if you are considering higher-risk investments, there should also be a statement about your appetite for risk, investment objectives, and degree of financial sophistication; and

• any restrictions on the types of investments you may make.

The more you and your financial planner have in writing, the better you are protected. For your own safety, always keep copies of all documents and ask for written details of the financial plan given to you verbally. Never make checks out to any individual, but only to the firm you are dealing with.

Getting Good Value

Good financial planners are hard to come by. Although your choice of financial planner will be a very personal decision, there are some general guidelines you should observe before settling on one. An ideal financial planner does the following:

• Listens to your needs–A good adviser will help you construct a customized portfolio rather than push a standardized set of investment solutions at you. Good advisers will help with issues where they do not benefit directly. For example, if you have accumulated expensive credit card debt, they will ask you to pay it off before making an investment.

• Reviews your portfolio periodically–Your adviser should help you review your portfolio periodically–for example, every three or six months–to assess whether your investments are performing according to plan and to adjust your wealth-building strategy, if necessary. He will also help you rebalance your portfolio as market conditions change.

• Protects you against churning–Churning a portfolio is when you often buy and sell investments in pursuit of a better return although transaction costs may accumulate to an unacceptable level. A good adviser will be vigilant in preventing this and will encourage you to keep your transactions to a minimum.

• Is transparent on charges–The best advisers are completely open about the fees and commissions they earn and willingly point out that some investments incur higher costs than others.

• Gives access to specialists–Advisers should be able to pass you on to specialists, if you have technical questions about a particular type of investment.

• Is readily available–A good advisory firm is interested in developing a long-term relationship with you and you should be able to contact them whenever you have an investment matter to discuss.

Warning Signs

If you are being offered a proposition that seems too unusual or is promising extraordinarily high returns, stop and ask yourself a few questions.

• Am I being told that this is a once-in-a-lifetime opportunity? Is there pressure to make take a decision immediately?–Investment is not about once-in-a-lifetime opportunities. These may occur in business but not in the financial markets. There is no need to make instant decisions.

• Is a very high return being guaranteed?–Some fraudsters hope that the promise of an unusually high return–for example, 10% to 20% a month return –will be so tempting that you will abandon your caution. Investments producing high returns are almost certainly risky, and don’t come with guaranteed returns. If a guarantee is on offer, further investigation will probably reveal it to be worthless.

• Who regulates the investment?–Check to see if the firm is registered and whether it is permitted to market the kind of investment it is offering. For example, a company selling securities must not only be incorporated with the Securities and Exchange Commission but must also have another set of papers from the SEC authorizing it to sell securities.

Advisors have a duty to give you the best advice for your circumstances but they cannot force you to take it. It is, after all, your money. This is why it is still important for you to try to understand investment issues as fully as possible, especially with regard to risk and uncertainty.

Your relationship with your financial planner is key to your achieving your financial goals. Make sure you nurture and maximize this relationship.

(For more information on how you can build your personal wealth or to schedule a free financial check-up, you may call Citibank at 894-7162.)