7 questions crew should ask their financial adviser

It can sometimes be tough to ask the ‘difficult’ questions when seeking financial advice but remember, you have the power here.  Focused research gives you peace of mind and is well worth the effort as it can save you both heartache and money. Your financial adviser should be able to answer your questions directly, provide documentation about all aspects of their services and business, and clearly articulate their value.

The aim here is to gain an honest and open insight into whether you are both a good fit and whether working together will be beneficial to realising your future goals. This is your ‘due diligence’ for protecting your future. It is important that Superyacht crew take the time to evaluate their financial adviser before engaging their services long-term. Below are a list of questions to get you started when it comes to hiring a financial adviser:

1. What services do you provide?

When you first meet with an adviser, you may not be able to completely define all the services you’d like.  By asking this question, you’re trying to determine whether their services meet your needs as you understand them.

Asking this question not only identifies the services offered but also brings to light any services that are not provided.  It helps you determine whether this is a comprehensive financial planning service. If the service proposition revolves around you, your family, and your lifestyle. Or, whether it is a service solely focussed on investments and selling you financial products.

While every financial planner is a financial adviser, not every financial adviser is a financial planner.

If an adviser only offers investments, then that’s all you’ll get.  If an adviser, or financial planner, adopts a holistic approach to financial planning and investment, it’s more likely that you will be able to use their services to satisfy a whole range of associated needs. This is likely to include lifestyle financial planning, retirement planning, cash-flow planning, tax planning and estate planning.

It might be that they can’t offer all the services you require. At United Advisers Marine, for example, we don’t offer tax planning, but we work with a number of specialist partners so that we can provide a holistic service to crew.

2. How do you charge, and how much do you charge?

When you first think about whether or not to take financial advice, you are likely to want to know how much the service is going to cost you. A financial adviser or planner should at least be able to provide you with an estimate before you agree to become a client.

It all depends on how charges are calculated and paid; whether by fees or commission, or a hybrid of both.  Many financial advisers, for instance, charge a percentage of the portfolio they manage for you, and it’s not uncommon for this to represent between 1% and 1.5% of the value of your portfolio annually.  If you wish to receive a holistic financial planning service from a financial planner, they may charge a planning fee for the service plus costs associated with managing any financial products.

Broadly, there are three types of fee structures:

• “Fee-only”:
  • Paid exclusively from a fee you pay.
  • May be paid as a percentage of assets invested, an hourly rate depending on the work performed, or a retainer commonly paid monthly or annually.
• “Fee-based”:
  • Paid from a fee you pay and commissions from products you buy.
• “Commission only”:
  • Only paid via commissions from products you buy.

It is a good idea to try and get a feeling for what your costs will be upfront and what incentive exists, if any, to sell you financial products.

Here are some additional questions you may like to ask to clarify your understanding of fees:

• Do you have a minimum fee?
• Do you have a minimum portfolio size?
• Is there a financial planning fee?
• How do you get paid for investments you recommend?
• If you manage a financial portfolio for me, do you charge a percentage of assets under management?
• Are you paid commissions on investments or products you sell?
• How am I billed (frequency and from what accounts)?
• Do you receive payments from mutual funds or investment companies?
• What other costs will I incur apart from what I pay you?
• How does billing work? What is the frequency and mechanics of your billing system?
• Do I need to pay fees to you or can they be taken from my investments?
  

3. What is your investment approach?

Your adviser should be able to articulate their investment philosophy in terms you can understand and this should reflect a process-driven approach, time-tested by a team of professionals.

Does your adviser or planner purport to be in business to make you money through high returns?  If you receive this feedback ask how they might do that because making such a claim is sheer hubris as no-one knows what the future holds.

Another way of phrasing this question might be “Do you believe you can beat the market?” to which the only sensible answer should be “No”.

If your adviser contends that they make investments consistent with your tolerance to risk and your aspirations and are open about how the market operates and its inherent fluctuations. Then, entering into a relationship with them may be worth considering.

4. Could I see an example financial plan?

This question gives you the opportunity to see what your adviser offers and to have a conversation with them around what you like, don’t like, want, don’t want, and what level of information you expect during your relationship.

From the example financial plan you should also be able to determine how closely it relates to an individual’s objectives and how useful and flexible it might be as an evolving tool to ensure you stay on track over time.

5. Do already have superyacht crew as clients?

A “yes” might not be essential to you. But, based on our experience, it can be beneficial to work with an adviser who is familiar with the industry. Advisers familiar with Superyacht crew will not only have working methodology and support which suits, but they should also be well versed in the right kind of investment opportunities for crew.

You might also be interested in asking how many clients the adviser or planner takes on each year. This is because the number of clients serviced tends to have a direct correlation with the level of service.  A smaller number of clients often represents an increase in the amount of personal service.  Be aware, however, that fees may also be affected; fewer clients and more personal service may mean a higher cost.

6. What level of contact do you usually have with each of your clients?

This question aims to start a conversation about the level of interaction the adviser or planner typically expects to have with a client.

Additional questions you might want to ask during this conversation might include:

• How often, and how do you communicate with clients?
• Whose responsibility is it to make sure there is regular contact?
• Do you proactively communicate your rationale for any decisions to buy or sell, and how do you do that?
• How do you make sure every client receives personal and professional service?

Usually, a financial adviser should communicate transparently in a way that best suits the client. This is your opportunity to make sure you voice your preferred communication method(s) and contact interval.  Crew are often busy during the day so you might want an adviser who can respond to your queries outside traditional working hours or via a flexible online format.

This leads to a conversation about what happens at each meeting; does the adviser merely review the performance of your portfolio?  This is a backwards-looking approach.  Or, do they take the opportunity to forward-plan and ensure your financial plan is continually on track with your goal? This is a forward-looking approach.

The question can also be used to lead into a conversation about how much is charged for each review and enables you to match the service offered with your needs and expectations as well as what you’re willing to pay for the service.

7. Will I work solely with you, or with a team?

You wouldn’t be blamed for thinking that an adviser operating alone might provide a more personal service. But, counterintuitively, advisers working within a team environment tend to be more productive and foster deeper client relationships*. Whatever the organisational situation, it is a good idea to understand what to expect, and explain the type of relationship you want.

The team is essential because the service you expect needs to have continuity even when your adviser or planner is, for instance, on holiday.

*PriceMetrix report 2015