Asking the right questions

I do not know about you but there are some professions and services that I use where I try to make myself look knowledgeable by asking questions and then find out that what I have asked is quite inconsequential in view of a problem that has occurred later.

For instance, when I go to buy a car I usually ask questions like "What is the top speed?" and "How many kilometres does it do to the gallon?" Then, three months after buying it and when the back axle drops off or the engine ceases up, I realise that what I should have asked was

"Has the car had any accident damage?"
"Has it been serviced regularly?"
"Is there an after-sales guarantee?"

I often feel the same thing applies to people coming to see me in my profession as a financial adviser. No, I do not mean that they should ask me if I have been regularly serviced, etc, but there are certain questions that any potential client should ask an adviser but rarely do.

The questions I do get asked tend to be product specific. Whereas the questions I should be asked should relate to my and my company's qualifications in advising them on their financial affairs.

Let me give you examples. Almost every client who is interested in investment, asks me what sort of return they will get in the next year. Often, they are very unhappy when I tell them that this is an impossible question to answer, certainly in view of stock market performances over the last two years. In fact, a better question might be "How much money will I lose over the next year?"

We all know that stock markets can be down as well as up, but over any five-year period since 1930 they have outperformed most other types of investment and therefore, while I feel confident that they will make money over this period, I cannot guarantee an exact return over any period.

Similarly, most clients ask about charges which, in my mind, although important are not paramount. Some funds have very low charges like tracker funds. The reason the charges are low is that the fund is likely to be managed by a computer programme that takes no account of current events.

For instance, a fund that follows a stock market index will continue to invest in a failing company providing it is still in the index that it is tracking. If a fund is being 'managed', the fund manager will be aware of what is happening and, hopefully, will sell the stock for a more productive company.

Do not get me wrong, I am not against tracker funds as they can be ideal in a rising market, but not a falling or uncertain one.

The point I am making is that sometimes it is worth paying higher charges for a better service and, hopefully in the long run, better performance.

This is much more evident with insurance, low premiums are a waste of money if you find that insurance coverage is also poor or the insurance company will not pay out in the event of a claim.

What questions should be asked?

The first question to be asked should concern the independence of the company that you are dealing with. There are well over 20,000 different mutual or unit trust funds available in the market, for example, and hundreds of insurance companies. So why tie yourself to dealing with one company's products. So, ensure that the adviser and company that you are dealing with is truly independent and able to research the market for the investment that will best suit your needs.

What qualifications does the adviser have in helping you sort out your financial future?

Unlike some other countries around the world, you do not need any professional qualifications to set up as a financial adviser in this part of the world. Therefore, the person who is advising you on some of the most important decisions in your life may well have less experience in financial matters than you do!

How is the adviser paid, commission or salary?

Now, let me say, there are some very good advisers who are paid commission but if you are having a bad month, you have to pay rent to your employer for office space, purchase a new computer, the school fees are due, etc. There is always the temptation to place the client into an investment that pays a higher commission rather than one paying a lower commission but may be more suitable.

What protection do you have if a problem occurs at a later date?

Remember there is no ombudsman to complain to here. So ensure that the financial advising company that you are dealing with is at least licensed by the Central Bank. Oh! and another point, if they have a licence, make sure that it is an investment licence and not a licence for, say, general insurance, which is not what you are buying.

Do they have public liability insurance?

Do they have a strong parent company or backer who is likely to support them in the event of any financial problems?

Once you are reassured by the answers received then you can ask your questions about return and charges if you like.

To all you car salesmen out there: I need a new car, so I will be visiting all you car salesmen out there. Please treat me kindly and help me to ask about the things I need to know, rather than the things I think I need to know.

The author is the Head of Reti-rement and Relocation, Towry Law International, Dubai.