Financial advisors deal with the same questions from clients over time such as what to do with their money, how to plan for retirement and what type of insurance products they should consider. However, at times, a client throws a question that will stump you.
A recent CFA Institute study has compiled some frequently asked difficult questions and suggested measures to deal with them.
• Who will be working on my portfolio and what are their credentials and experience?
• What happens to my portfolio if you or members of your team leave the firm or die?
• Can you provide me with examples of the analysis and process you perform to arrive at investment decisions?
The key consideration of investors is that the person or team they have identified is careful, judicious, and diligent. Advisors should make their clients understand their expertise and what would happen to their portfolio if they die or change their profession. You should make them understand the investment philosophy of the fund house that investors are entrusting their money.
Clients are often sceptical about the firm or advisors’ actual interest. Here are some questions they usually:
• What regulatory standards, if any, govern our relationship?
• How do you decide which investments to recommend? Are you free to recommend investments sponsored or managed by other companies?
Advisors should ensure that they put the clients’ interests before theirs and their organizations. Recommending funds or schemes that fetch higher commission or have some personal benefit associated to it is against the ethical conduct of advisors, says the study.
Disclosure of conflict of interest
Very often, conflict of interest arises between an IFA and his client due to several reasons like fees arrangements, investment performance and so on. To ensure that it is a hassle free process, clients may ask the following questions.
• What is your process for identifying and communicating conflicts of interest?
• How are conflict of interest addressed and mitigated and can you share an example?
It is important to realize that conflicts of interest do come up, but the important thing is that you trust the person you work with to handle them responsibly and with transparency. Advisors should ensure that the trust is developed in the advisor-client relationship by maintaining a transparent process and communicating regularly and effectively.