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Millennial Money: Should I engage a financial advisor?

·Contributor
·5-min read
(PHOTO: Getty Creative)
(PHOTO: Getty Creative)

SINGAPORE — There have been plenty of cases where financial advisors rip their clients off and cheat them of thousands of dollars. How then can you be careful in choosing a financial advisor? Investing is increasingly becoming a trend for young people even though they may not know much about it.

This is part of a series where Yahoo Finance Singapore will share about the whys and hows of investing. In this fourth part, we speak to several financial experts and young undergraduates who discuss the importance of choosing a financial advisor.

Learning independently

According to OCBC’s Financial Wellness Survey 2020, millennials — those below 40 —were the most reluctant to seek professional advice on investments. Only 26 per cent of them were willing to do so as compared to 33 per cent of Gen X (age 40 to 56) and 37 per cent of Baby Boomers (age 57 to 66).

“I think it is important to learn more about finance independently rather than rely on a financial advisor,” said Munnamgi Harsha Vardhan Reddy, 22, a computer science student from the National University of Singapore (NUS).

“A financial advisor might not always be correct. Making such decisions at a young age would mean that you would have more time to learn from your experiences,” adds Harsha, who has been investing in the US markets and options trading since he was 19.

Others, like fellow NUS student Glendon Gwee, who is majoring in finance, thinks that having a financial advisor is not necessary.

“There is a lot of information available on the Internet, and it’s for free too. It is also not too difficult to pick up some books and learn the basic financial terms,” says Gwee, 25.

Gwee also suggests youths to use Robo-Advisors, as there would be “no one pressurizing you or upsetting your investment plans”. Robo-Advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.

Financial advisors are still important

On the contrary, there are also youth investors who prefer to seek professional financial advice. With the COVID-19 pandemic causing an unprecedented economic impact on many lives, finance management has caused more confusion to youth investors.

“Crisis or not, good financial discipline and planning are important as they have a long-lasting impact,” said Koh Ching Ching, OCBC Bank's Head of Group Brand and Communications.

Twenty-year-old Betty Chew, an arts undergraduate from NUS, had engaged a financial consultant to help her with her finances when she started investing under OCBC’s Blue Chip Investment Plan (BCIP) last August. Under the BCIP scheme, investors can buy shares in bulks of S$100 depending on how much they feel like buying. So far, Chew has invested an average of SS$100 a month.

“I think it’s safer to have a financial consultant as if I were to do everything myself, I would definitely be unsure of what is the best thing to do.” Chew shared. “It’s as good as being thrown in the deep pool without knowing how to swim.”

Financial advisors themselves find their role an important one. “There is a huge satisfaction whenever I can guide my clients to make financial decisions that fit them best,” shared a financial advisor from the American Insurance Association (AIA) who only wanted to be known as Sean.

“But it is vital for investors to understand their own investment needs before choosing a financial advisor by identifying and prioritising their financial goals.”

Choosing a financial advisor

How then does one go about choosing a financial advisor? Yahoo Finance Singapore spoke to several financial experts who highlighted three main points that one should take note of when choosing a financial advisor:

#1 - Your financial advisor should be honest

A financial advisor should always have the best interests of their clients, and work towards getting their utmost satisfaction.

“Find someone who will be honest and upfront with you on the upsides and downsides of investing into something, not someone who only tells you how much you will (potentially) be able to make from this investment,” advises Asheesh Chanda, CEO of Kristal.AI, a digital-first private wealth platform in Singapore.

Chanda added: “Financial advisors should also furnish you with the risks and the full fees involved, as well as any terms and conditions or restrictions you should be aware of. The last thing you want to do is get caught by the fine print.”

#2 - Your financial advisor should offer personalised advice

The compatibility of a financial advisor to your investment needs are essential in a financial advisory relationship, says Chanda. Usually, a watch-out sign for that is whether the financial advisor offers personalised advice.

“Financial advisors should follow an evidence-based approach and advise on portfolios that specifically suit your goals and risk tolerance; otherwise they may simply be product-pushers that try to earn kickbacks from fundhouses,” cautions Gregory Van, Founding Partner of Endowus, a Singapore-based financial technology company.

“Digital-first offerings are typically more cost-efficient, and providing things like trailer fee rebates helps with aligning one’s needs,” added Van, 30.

#3 - Your financial advisor should be knowledgeable

Financial advisors have access to top fund managers and products, hence, they should be knowledgeable enough to do the work of cutting through the noise for you among the thousands of investment options out there. If you have to do all the homework, then something is wrong.

“A good financial advisor is smart enough to select from only the best of the best as the building blocks of a portfolio that they customise for you,” said Van.

Related stories:

Millennial Money: How to invest? What do I even invest in?

Millennial Money: Why should young people invest?

Millennial Money: What does investing mean to you?

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