Choosing An Investment Adviser
>> Sunday, October 11, 2009
How does one select an adviser to invest their savings?
For most Singaporeans, it means relying on their trusted financial planner/insurance agent/relationship manager. Or listening to a friend, colleague, relative for the next hot tip to invest in unit trust or shares. How has their advice fared during the downturn?
We spend a lot of effort securing a job, and even more effort working everyday to earn our salary. And then even more effort to control our expenses to save. However, when it comes to investing this savings, why do most make the least effort? Shouldn't we make the most effort of protecting and growing this hard earned money?
Many do not even bother to learn what it means to invest and place complete faith in their adviser to invest for them. Although this approach is not ideal, at least select a good investment adviser.
Things to look out for when choosing an investment adviser:
- Is he also invested in the product/investment he is recommending?
Require him to prove his portfolio on how much he has invested in the product and when.
- If he is not invested, why is he recommending you to invest?
- If he only invested very little, does he not have faith in his recommendation?
- If he invested long ago, has the circumstances changed since he invested? He may have entered at the bottom long ago and you may well be entering at the top now.
- What is his track record?
Require him to prove how long he has been investing and what is his performance thus far.
- Would you trust someone inexperienced? He should have experience of at least 7 years or more, having weathered through a boom and a bust.
- A rate of return of at least 10% annually.
- If he has been making losses for the past years, how confident are you that he will start making profit the next few years?
- If he has been making returns of around 5%, what difference is it from placing your money in a bond fund or investing in good dividend yielding stocks yourself, while saving commission for his "professional" advice?
- How is he remunerated for his services?
Require him to explain clearly how he gets paid from you investing with him. - If the charges are high, you will have to make returns in excess of them to make a profit.
- Does he earn from switching? It will encourage churning, where he shifts your investment in and out just to earn his fees.
- Annual charges with low or no initial charges will encourage continuous support as compared to product selling if is high initial charges only.
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