How do I know if my financial adviser is doing a good job?

You’ve found a financial adviser and are working with them, but how do you know whether they are doing a good enough job? 

Like hiring a mechanic to work on your vehicle, it may feel like it is difficult to know for sure if they’re doing a good job unless you are familiar with the area yourself. 

However, there are many different ways to tell if your financial adviser is working hard on your behalf. 

Here are some of the most important things to look out for. 

Is your financial adviser aligned with your needs?

The right financial adviser should hone in immediately on your requirements and take into account your risk profile, ensuring that any financial decisions or investments comply with it. 

They should also listen carefully to you and take on board your short-term and long-term financial objectives, and consider how to achieve these. 

Indeed, your first meeting with an adviser should include a lengthy discussion on these themes so that, together, you can decide on your long-term financial strategy.

If they are trying to sell you investments or other products, such as insurance policies, that are unsuitable for your needs or involve more risk than you are comfortable with, then they may not be the right adviser for you. 

How is your portfolio performing?

How are your finances? If your financial adviser is doing their job properly, then, in general, your finances should be in good health and your investments should be performing well.  

That’s not to say that you won’t have any off-moments – even the best financial adviser in the world can’t control the markets or stop major incidents around the world from happening.

This could include global uncertainty, disasters or wars, which may negatively impact your investments over the short term. 

Your investment portfolio may still perform poorly in bad years for the financial markets. But, over time, money invested in the stock markets historically outperforms the returns available from cash left in a bank account. 

What’s more, your financial adviser should be able to explain to you why your investment portfolio is performing in the way it is.

You can also compare the performance of your investments to certain benchmarks, such as the FTSE All-Share or the S&P 500.

Is your financial adviser overtrading?

How often is your financial adviser buying and selling investment products on your behalf?

They may have to make new purchases for your investment portfolio, or pivot to different investments if the markets are choppy, but overtrading is unnecessary and can prove costly due to the transaction fees that will be racked up. 

As such, a reputable financial adviser will typically follow a long-term buy-and-hold strategy with a five to 10-year outlook. 

If you are concerned about your financial adviser’s performance, or they are constantly ringing up suggesting new investments to buy, this may be something to keep an eye on. 

Is your adviser explaining what they are doing? 

A good financial adviser will clearly outline their strategy for your finances with you and ensure that you understand exactly what they are doing with your money. 

Indeed, communication is vital to a good relationship between a client and their financial adviser. They should be responsive to your phone messages and emails, too, and listen to any requests or concerns that you may have, taking the time to respond to them. 

What’s more, during difficult financial times, they should be proactive in reaching out to you to reassure you about your investments. 

If they are not doing so, then this could be a cause for concern. 

Are they taking a holistic approach to your finances?

Is your financial adviser seeing the bigger picture in terms of your overall finances? 

As well as your investment portfolio, financial planning should encompass other areas of your life, such as planning for retirement, establishing emergency funds, estate planning and planning for life events, such as school or university fees for your children. 

Your financial adviser should also be looking at how much tax you are paying and helping you make your finances as tax-efficient as possible.  

They need to have a full picture of your overall household finances to make key financial decisions in other areas of your life. If they are only interested in your investments, then this could be a bad sign. 

Are they performing an annual review?

Furthermore, a proactive financial adviser should undertake an annual review of your finances and your tax situation, ensuring that your financial plan is up-to-date and that they are responding effectively to any changes in the tax regime.

How much are they charging?

The fee structure may be another way to tell whether your financial adviser is the right one for you and your needs. Your adviser should explain exactly what charges you will need to pay and how they are structured. 

Advisers typically charge between 1% and 2% of assets under management (AUM), with fees usually lower for larger assets. They may also charge an hourly rate or fixed fees for certain types of advice.  

Financial advice should add value. If you are concerned about any aspect of the fees you are being charged, you should reach out to your financial adviser and ask them to explain them. 

A good financial adviser should be working hard on your behalf and be happy to explain any aspect of their strategy for your money, how your investments are performing, and their fee structure.

If you have any concerns about their performance, reach out to them or consider seeking a second opinion from another recommended adviser. 

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If you found this article useful, you might like our article on how to choose the right financial adviser for your needs.