Do you really need a financial adviser? That’s the question we’ll be exploring in a two-part series on the financial advisory landscape in Singapore. In this first part: Many people are hesitant, even wary, to engage the services of a financial adviser, even when they know they’ll benefit from some advice on how to better manage their money. But is there a valid reason for this skepticism? Let’s hear from critic Budget Babe on why she’ll say no to a financial adviser.
Words by Budget Babe
Financial advisers have gotten a pretty bad name for themselves over the years. We are all familiar with that one (or multiple, in my case) friend who tries a little too hard to sell us insurance. Many of you have probably encountered an old friend who reappears in your life again, asking you out on the pretext of “catching up”, only to realise he/she mainly wanted to sell you some financial product. They’ll claim to have your “best interests” at heart, and as a friend, why wouldn’t they?
Having encountered too many of such people above, I personally believe I don’t need a financial adviser (FA).
Here are some reasons why I feel this way:
Your finances are too important to be left in the hands of someone else.
Call me skeptical, but I don’t believe anyone else other than myself will ever truly have my best interests in mind. Money is a very intimate matter for me, so I prefer to learn and manage it on my own. Most of us are even wary about telling our friends our monthly salary whenever we’re asked, but yet we readily provide this information to an FA. Moreover, if these FAs are really as good as they claim to be, then why aren’t they a millionaire yet?
I’ve heard, and know of, too many financial advisers who don’t know how to manage their own money either. For instance, a Singaporean couple’s dream wedding last year cost $110k and landed them in $90k debt. The groom was a 32-year-old insurance agent. Imagine that!
Too many financial advisers sell based on the commissions they can earn.
Did you know that 50% of your annual premium for your Investment-Linked Product (ILP) goes to paying your agent’s commissions? Or that 30% goes to them when you buy an accident plan?
Most FAs use subtle pressure to get you to sign up for an ILP with them after only one or two sessions with you. My FA spent less than 3 hours with me before I bought an ILP from him, believing naïvely that he only had my best interests in mind; and for that, he got $900+. That’s equivalent to $300 per hour!
Try telling your FA that you want to buy term insurance (instead of life insurance or ILPs) and you’ll find that few agents will be willing to spend time to sit down with you and work through the policy together. That’s because the commissions they earn from term insurance are peanuts.
FAs rely on the commission of the financial products to make a living. Do you really think they care more about your interests than earning their keep?
You no longer have to go through an FA to buy insurance.
In the past, you could only buy insurance through an agent. But earlier this year, MAS announced their Direct Purchase Initiative (DPI) scheme, which allows you to compare and buy insurance directly from the providers themselves. This is great news for people like me, because I can now bypass my insurance agent!
It is not that hard to do your own investments.
Contrary to what most people think, investing is really not all that hard. While it does require a certain extent of technical knowledge and analytical skills, there are a wide variety of investment products out there to suit different skill levels. Simply investing in an index fund that buys shares of the top 30 companies in the market is a no-brainer and will help you match the market’s annual return for the most part without much effort. I write on how anyone can get started on investing easily on my blog – it is easier than you think.
Your personal finances should be, and is best, managed by yourself.
Many people have the mistaken impression that having an FA will ensure that their personal finances are well taken care of. This couldn’t be further than the truth. No one else will care for your money more than you do.
If you want to be financially empowered, you’ll have to manage it yourself. One simple way of getting started is available right here: just use DrWealth’s free tools for managing your personal finances!
But to some people, FAs can be invaluable.
If you’re educated and willing to put in a little effort into learning about personal finances, I honestly think there’s no need for an FA. However, if you’re not financially-savvy and also lazy, then perhaps you do need an FA to help you manage your money.
My mother is not good with her money and knows little about insurance, but thanks to her FA (my uncle), she is well covered and even has her money working for her through investment products. (If you’re wondering if I bought anything for myself from my uncle, the answer is no.)
However, there are too many FAs who do not last long in the industry. The turnover rate is generally high and there is little after-sales service, so many of us land up in a situation where the FA we bought our products from are no longer around to service us when we need to file a claim, or make some changes to our funds. I’ve met over 6 FAs one-on-one and none of them convinced me that they were a good FA for me to go with, so I’ve continued to DIY my own finances. This applies to both agency-tied and independent FAs.
Finding a good FA is like looking for a pin in a haystack. The industry today is cluttered with too many FAs who are commissions-centric and trained to sell purely on the benefits of their products. If you’re lucky enough to find the right FA who truly looks out for you and is in it for the long-run, I’ve no doubt that such an FA can indeed add value to your life and personal finances. But based on my experience thus far, the “best FA” is ultimately myself.
So I’ll skip the FA for now.