Investments: things to discuss with your banker

Do you have an investment plan you’d like to bring to fruition? That’s excellent news! As a loyal reader of myLIFE, you’ll be well aware of the benefits of employing the services of a financial adviser. To make sure you can provide them with a clear picture of your preferences, fears and expectations, you’ll need to prepare well for your first appointment. Read on to find out the main topics and essential questions you should raise with them when you meet.

The decision to invest in order to make a life goal a reality is an important one. Taking the plunge is not always easy, as it means exposing your goal to the ups and downs of the financial markets, sometimes over a long period. For most investors, market volatility can be an emotional affair – and unfortunately, emotions are often not the best guide. They send us misleading signals, called cognitive biases, which can cloud our decision-making. That’s why you’re often better off relying on a professional, who will have a more objective view and a greater degree of composure, to help you manage your investments – and this applies to every investor profile.

For example, someone who is new to the investment world will need an adviser to help them realise that investment fads are not necessarily the right way to go. An experienced investor, on the other hand, will be more likely to fall victim to overconfidence, and so would benefit greatly from their banker keeping them in check in order to avoid taking careless risks.

Whatever your situation, your new financial adviser will discuss a whole range of issues with you at your first meeting. They will start by going over a number of important technical and regulatory points: the origin of the funds to be invested, your investor profile and risk tolerance, the type of mentorship you require, the costs associated with your chosen strategy and the commitment it will require in terms of time, etc.

It’s your responsibility to be completely transparent with your banker regarding your situation, your plans and your expectations.

In addition to these technical aspects, it’s your responsibility to tell them about yourself, your plans and your expectations. The more thorough and transparent you are, the better a position your banker will be in to help you build a strategy that suits you, and the easier it will be to communicate moving forwards to make sure that your plan is running smoothly. But how should you go about preparing for the interview from your end? In addition to all the mandatory aspects mentioned above, here are five key points to bear in mind during your first meeting with your banker.

1. Typical clients and investment philosophy

When you go to meet with a financial adviser, you’ll be wanting to talk about yourself, your plans and the investment solutions they can offer you. However, it’s a good idea to start the meeting by asking them a few questions about themselves and the institution they represent. Why? Because it’s vital to make sure that the person you’re talking to is the right adviser for you. In addition, while your financial adviser will of course be more objective than you when it comes to helping you find the right financial products, they too may be subject to cognitive biases.

Is your banker used to dealing with clients like you, or is your investor profile not one they tend to come across? What does a typical client look like for them, and for the institution that employs them? If your profile differs in this regard, that’s not a problem, as long as your banker doesn’t place you in an investor category that doesn’t suit you. That won’t happen when it comes to your risk profile, as your banker will have to determine this by asking you very specific questions. When this can happen is if your socio-demographic profile is very different from that of your banker’s usual clients. For example, they may be used to dealing with wealthy clients who are at the end of their careers and have a good understanding of the financial world. If you’re a young professional who’s new to investing, it’s a good idea to highlight this discrepancy right away so that your advisor can take it into account and provide you with more appropriate guidance.

Once this point has been settled, you can work together to study the investment philosophy they propose and compare it with your values and priorities. If, for example, you’re particularly sensitive to environmental criteria, you should check right away that you will indeed have access to solutions that allow you to invest in the sectors that are important to you. If that’s not the case, then you might as well stop the meeting there. Your adviser will also want to know all about your priorities and objectives. So it would be a good idea to make this the next point in the discussion.

2. Defining priorities and objectives

When you ask your adviser about their investment philosophy, the chances are that they will return the favour by asking you about your priorities, investment objectives and risk tolerance. If they’re good at their job, they will not only seek to understand your tolerance to the objective risk associated with the sometimes unpredictable fluctuations of the market, but they will also address the subjective dimension of risk, which is determined in relation to your deepest aspirations and your life trajectory. You’ll need to think about this question ahead of time and not talk directly about the portfolio you want to build up.

Before you tell them that you like technology stocks, for example, or that you want to focus on a particular company or market, you need to know what you want for yourself. What do you want to invest in, with what goals, over what period of time, in support of what life plans? Do you want to be able to finance a specific project in the long term, or is an additional source of income your aim? For most investors, their investment horizon and life plans are more important than what securities their money is invested in. While these two aspects are certainly not incompatible, you still need to have a clear understanding of what really matters to you and make sure that the discussion focuses on that first and foremost.

Once you’ve provided your adviser with sufficient detail regarding your plan and your objectives, you might find that they are able to steer you towards securities that you’re not familiar with but that are better suited to your plan.

Once you’ve provided your adviser with sufficient detail regarding your plan and your objectives, you’ll probably find that they are able to steer you towards securities that you’re not familiar with but that are better suited to your plan. So go into the meeting with an open mind – remember: investment tools are only a means to an end, not an end in themselves. In the end, your investment plan is what matters!

3. Simplification and (re)explanation

The third step is to ask them to rephrase anything you haven’t clearly understood. The prospect of investing frightens some people, and that’s often because they feel they are stepping into a highly technical, maybe even incomprehensible, world. While it’s true that the world of finance does employ some jargon, you shouldn’t dampen your enthusiasm. Whether it’s your first meeting or your hundredth, you shouldn’t hesitate to interrupt your financial adviser if you hear a term you don’t understand. Their role is to help you clarify your plan and to propose appropriate solutions using accessible terms. They will be qualified to explain in clear, straightforward language what a particular investment tool or vehicle can do for you – and if they can’t, then beware of financial lingo! The same goes for graphs and diagrams. If anything’s not clear, then say so!

It’s worth remembering at this point that there is no causal link between the complexity of discourse and the success of investments. Whatever your level of financial expertise, it is vital to understand what it is you’re going to be investing in. So put your overconfidence or fear of looking silly to one side and ask for clarification wherever necessary.

4. Performance assessment

Would you prefer to beat a market that goes down more often than you or be beaten by a market that goes up more than you? This question illustrates the importance of being clear about the criteria you want to employ to evaluate and monitor the performance of your investments. This is something that should be addressed once you agree on what strategy to follow. As well as looking at the risks involved and the average expected return, it’s important to broaden the discussion to include the specifics of your situation. For example, depending on your own objectives, it may be preferable to try and secure a modest absolute return in the short term, rather than trying at all costs to outperform a market that’s potentially highly volatile over the same period.

The exact question you need to keep going back to with your banker is this: is the strategy I’m following still suited to my financial goals? If the answer is no, it would be distressing for you to only find out then that you’re not free to change course. With that in mind, you should raise the question of how adaptable the chosen strategy is at your first meeting. The balance between risks, needs and budget is what’s at stake here.

It’s not your life plan that needs to adapt to the performance or underperformance of your investment strategy; it’s the strategy that needs to be able to be modified to adapt to your investment plan. This is easier said than done.

Your financial adviser is like an aeroplane steward who is there to explain why there’s no need to panic when you hit turbulence.

5. Methods of communication

Your first meeting is over, and your relationship with your banker is off to a good start. Fantastic! But before you go your separate ways, there’s one last thing you should remember to mention: the frequency of future exchanges and the communication channels that will be used to provide regular updates. Looking ahead, you can avoid unnecessary frustration by clarifying these points in advance and knowing exactly who to contact should the need arise.

Are you the type of person who gets anxious and panics during market downturns? This might be the moment to tell your adviser and ask them to take the time to explain how you should react. Think of them like an aeroplane steward who is there to explain why there’s no need to panic when you hit turbulence. A steward who is available before you encounter turbulence, but generally very busy helping you get through it when it arrives. And don’t forget that you can always visit myLIFE and consult our wide range of investment content.

Have a safe flight!