How can you tell if your financial advisor’s advice is well grounded?
There’s a whole sea of financial policies to choose from, yet your financial advisor is able to sift out a select few just for you.
How do they do that? Is it intuition?
Truth is, making recommendations is a lot more complex than just following your gut. There are a lot of factors that have to be considered; but what are they, exactly?
Well, don’t look any further! I’ll let you in on my secrets. Here’s a look into the mind of a financial advisor when making recommendations to clients!
Which stage of life are you in?
You’ve probably identified age as a key factor right off the bat. But age is really just the tip of the iceberg... I find it important to dive deeper. Instead of just looking at age, I consider the phase of life my clients are in — which encompasses so much more.
Let’s compare a 35-year-old with a family of their own and a 35-year-old who is single. How would I plan for these two clients? With children in the picture, the approach I’d take for the former would be financial family planning: working towards paying off house loans; ensuring their family would be left with enough money if the breadwinner passes away. For the latter, my focus would be to ensure the client attains financial independence.
Additionally, if a client’s parents are dependent on them for allowance, money would have to be allocated to their parents’ retirement planning. But if their parents are financially self-sufficient, more room would be opened up for investment.
As you can see from the comparison above, though both clients are the same age, my advice for each of them is tailored to the phase of life they are in. Each phase of life brings its own set of priorities. As you move through these phases, your goals will change, and so will the financial means to achieve them.
How fast are you climbing?
The link between your earning power and career advancement is clear-cut: as you progress in your career, your earning power increases. And when it comes to having options with your money, the sky isn’t the limit — your earning power is. So let’s talk about your career development.
The pace of your career advancement is heavily dependent on your skill set and the industry you are in. For example, with a job in consultancy, law or medicine, your income could increase exponentially if you go into a specialised field of work. I’ve heard of people who rose from entry level marketing roles to become key personnel in their companies within a short 5 years. As your income rapidly changes, so do your needs, ultimately affecting your financial decisions.
Since earning power marks the boundaries of what my clients can do with their money, I always make sure that I’m equipped with an adequate understanding of their nature of work. From there, I can properly assess what the projected career path is like for each of them and recommend plans that are suitable for them.
Where is your starting line?
Inheritance, savings, financial commitment — all these are determinants of your current financial situation. Inheritance and savings accumulate as a surplus, which can be used to generate more money and propel you forward. On the other hand, loans and other financial commitments are the excess baggage that prevent you from boarding the plane.
In theory, someone with loans does not have as much financial liberty as someone free of that commitment. When you have loans to pay off, it’s necessary to sort your plans by priority, especially if you are on a limited budget. During discussions with my clients, I recommend policies based on what they prioritise and make notes in my calendar to look into lower priority goals once their loan payments have been completed.
Other than that, we also have to work out how to pay off the loan. Let’s say you’re left with half of your income after necessary spending. Should you be paying off your loans with all of your remaining money? Or should you invest half of that remainder and grow interest on the principal amount?
There’s a popular saying in financial planning that I strongly stand by: ‘Make your money work for you’. When planning for my clients, I find it important to take their financial standing into consideration, so I can provide them with personalised recommendations that allocate their money in the most efficient and sensible manner possible.
What are your hobbies?
Are you a travel enthusiast who sets aside huge budgets for end-of-year trips? Do you enjoy daunting activities like surfing or rock climbing? Or perhaps you’re a fitness fanatic who subscribes to gym memberships. As an adult, I’m sure you find yourself carefully considering the cost of your hobbies before choosing to engage in them.
It goes without saying that different hobbies and habits incur different levels of spending. I’ve met people who spend just $300 - monthly! - on food and transport because they eat home cooked food on a daily basis. I also have friends on the opposite end of the spectrum, who spend $300 on drinks every weekend as a way to unwind.
I’ve met clients from all walks of life, each with their own set of values and hobbies, which affect their money allocations. For example, a client who earns $5,000 a month could be spending $4,000, leaving them with $1,000 for savings, insurance and investment. But for a more frugal client with the same income, a larger proportion of their money can be put into investments.
There isn’t a one-size-fits-all solution: it’s my job to provide guidance that complements each client’s lifestyle, not to have my clients make excessive adjustments to accommodate my plans for them.
Where do you want to be?
In the end, I look at all these factors in totality. It’s essential that your financial advisor understands where you are at and considers where you want to go in life. Where do you see yourself in 5 years? Maybe you want to get married, start a business or plan for retirement. The next question you should ask is: “How do I get there?” This step often stumps many clients — after all, you don’t know what you don’t know.
That’s why I highly value two-way conversations with my clients… It’s not just about giving my clients financial insight. It’s about listening to their concerns and goals, and analysing what they can and want to do with their money. That’s how I’m able to profile my clients, and find the best course of action for each of them.
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