Mark Lister: What makes a good financial advisor?

COMMENT:

The new financial advice scheme comes into force from this month.

This means that anyone providing a financial advice service must be fully licensed to do so or operate under someone else’s license.

This marks the culmination of work that started in 2021 and the end of a two-year period during which transitional licenses were valid.

In short, the bar has been raised and the regulatory environment strengthened, which should drive higher standards across the industry and ultimately mean that investors are better served.

There are many misconceptions about the true role of an investment advisor.

One of the biggest is that a measure of good advice is whether your advisor can predict where the interest rate, currency or stock market will go next.

Let me clear things up right away. No one can do it, at least not with any great accuracy or consistency.

This does not mean that you should abandon your advisor and go your own way. It just means that you need to better understand the critical role they play in helping you achieve your goals.

Rather than being good forecasters or stock pickers, the best advisors specialize in risk management.

They focus on assembling your portfolio in a way that ensures it is robust enough to withstand any market conditions you may desire.

This means a well-constructed set of investments, tailored to your specific needs and risk profile, and based on sound, disciplined investment principles.

A good advisor will put a lot of emphasis on this right from the start, helping you build a clear picture of exactly what it is you’re trying to achieve.

Are you investing for retirement, as a legacy for future generations, or both?

When do you want to retire, what kind of lifestyle do you hope for when you get there, and how much will be enough to achieve it?

Are you looking for a steady income stream, long-term capital growth or stability and reliability?

These are the most important questions that every investor should familiarize themselves with.

Once you know where you’re going, a good advisor will help come up with a strategy that can help you get there. More importantly, they will make sure you stick to it.

They become the gatekeeper – or more precisely, the bouncer – of any bad ideas that might try to enter the door.

There’s always a bandwagon to jump on, a bad decision to make, or the temptation to panic and run for the hills at exactly the wrong time.

Sometimes we get away with them with nothing more than a bruised ego, but others can cause permanent damage to our financial future.

This is when a good advisor comes into their own. They will ensure that your portfolio and your strategy remain in line with your long-term plan, regardless of what is going on around you.

That’s their one job.

They’re not here to predict where the NZX 50 index might finish this year, whether one stock will beat another, or other trivialities that will have little bearing on the value of your nest egg in retirement sometime in the 2030s.

There are many more important characteristics to look for when entrusting your savings to someone.

They are a behavior coach, an educator and a business partner. They will keep you on the straight and narrow, ensure you stay focused on your goals and objectives, and rein you in when you start to stray from the path.

Make sure you understand the true value of good advice and what you are actually paying for.

Mark Lister is an investment director at Craigs Investment Partners. The information in this article is for informational purposes only, is intended to be general in nature and does not take into account your financial situation, goals, objectives or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends that you contact an investment advisor.