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Do you need a financial adviser?

SINGAPORE — For people who don’t have the expertise or time to select investments on their own, working with a financial adviser can be a way to obtain expert advice. It’s important to make a good decision about whether to hire a financial adviser and who to select, though, since results tremendously.

SINGAPORE — For people who don’t have the expertise or time to select investments on their own, working with a financial adviser can be a way to obtain expert advice. It’s important to make a good decision about whether to hire a financial adviser and who to select, though, since results tremendously. 

WHAT THEY DO

Independent financial advisers offer advice about investment products such as shares, unit trusts, bonds or other assets, taking your goals, risk profile and time horizon into account. Once you’ve invested, they can monitor the investments and advise you to adjust them when needed. Advisers are somewhat different from financial planners, who also does more to help you build a plan for goals such as paying for your children’s education or funding your retirement.

WHEN TO HIRE

Whether you should consider hiring a financial adviser depends in large part on how much expertise, money and time you have for your investments.

If you are familiar with investments and asset allocation, and you’re comfortable with choosing investments yourself, you can often manage your money on your own. You’ll need to take the time to select the right investments, monitor them, and make changes when market conditions change.

You’ll also often need to accumulate enough funds to make hiring an independent financial adviser worthwhile. Independent advisers may charge annual fees of at least 1 per cent or a minimum of $500-$1,000, so the costs can be relatively high if your savings are low.

Once you’ve accumulated at least about S$50,000-S$100,000, though, it can be beneficial to hire a financial adviser if you don’t have the expertise, time, inclination or discipline to manage investments on your own. 

BENEFITS 

For many people, even those with financial knowledge, working with a financial adviser provides expert insights about what to buy, when to sell, and how to get the best deal. As The New Savvy CEO Anna Haotanto described them, “an independent personal financial adviser can help ensure that your financial services - from investments to insurance and estate planning - work for you.” Yahoo Singapore noted that investment advisers with a deep knowledge of money management can save you time and help you figure out your savings or retirement strategy.    

Some research has also shown that engaging a financial adviser can lead to better returns. A study by US investment adviser Financial Engines, for instance, found that individuals who get professional investment advice had annual returns 3.32 per cent higher than people managing their own portfolios. A study by the Centre for Interuniversity Research and Analysis on Organisations (CIRANO) in Canada also showed that advisers positively affect the level of household wealth, largely because the advice led to greater savings discipline.

COSTS AND RISKS

While hiring a financial adviser can be beneficial, there can be downsides as well. 

“One of the biggest drawbacks of hiring a financial adviser,” Yahoo Singapore opined,” is that they don’t always have your best interest in mind.” Advisers who work for financial institutions, and even some who work independently, may recommend investments based on commissions they’ll receive or products their firm is pushing rather than what is best for their client. 

While the Monetary Authority of Singapore (MAS) requires advisers to suggest suitable products, it doesn’t require advisers to take a “fiduciary” role and put customers’ interests first or do what’s best for the client. It’s important to realise, then, that some advisers may be biased towards their own interests rather than yours.

Although independent advisers may overcome the bias issue, the fees they charge can also cut into your returns, especially if you’re not investing much money.

There are more alternatives available than before as well. Online “robo-advisers” enable you to receive independent financial advice digitally at a fee of 0.5 per cent or less. These robo-advisers take your risk profile into account, recommend investments, and can reduce many of the human biases of other financial advisers. 

FIND THE RIGHT ONE

If you do decide to hire a financial adviser, it’s important to choose the right one. Rather than selecting an adviser based on random suggestions from family and friends, or finding a free adviser at a financial institution or elsewhere, purposefully selecting an independent adviser can be preferable.  

Getting recommendations from people you know who have a similar outlook, financial level and risk profile can be beneficial. You can also check for advisers using lists of members at organisations such as the Association of Financial Advisers.

Once you do find a potential adviser, it’s important to evaluate whether they are suitable, reliable and reputable. Indicators include whether they hold Certified Financial Planner (CFP) certification, for instance, and whether they are registered as a financial adviser on the MAS database. You should also ask for details about their track record and for references from other clients

Perhaps more important is to ask about their approach, to make sure they follow fiduciary standards and act in your best interest.  

CHOOSING THE RIGHT PATH

In some cases, investors can invest their money perfectly well on their own. If you don’t have the expertise, time or inclination to invest well, though, hiring an independent financial adviser who puts your interests first can be beneficial.

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