How to approach your first meeting with a financial adviser

The role of a financial adviser can be vital for understanding how best to invest your savings and which products are right for you. If you’re considering investing but don’t yet have specific goals in mind, our series of articles on financial planning aims to help clarify some of these ideas.

In our first article, we’ll cover everything you need to know about creating a financial plan that takes into consideration your personal goals and needs.

Have a clear vision

First and foremost, it’s important to have clear ideas about your savings and investment opportunities. A professional offering advice on your finances must fully understand your situation to offer the most suitable solutions for your profile.

So, before attending an initial call, it’s important to detail your financial situation, consider your wider family —both parents and descendants—and establish your desired goals. Whether it’s buying a holiday home or paying for your children’s university studies, an adviser can help you develop a plan to achieve it. It’s also helpful to write down any questions or queries you may have in advance.

Advice tailored to your unique situation

Every investor has a unique situation, and that’s why the adviser analyses all the factors at play to define the goals to be achieved.

Elements such as age, time horizon and risk profile will be added to the overall picture to evaluate the feasibility of the goals and the products that may be best used to achieve them.

First-time investors often think that they should adopt the most aggressive approach possible to obtain higher returns. In reality, it would be ideal for an intermediary to assess an investor’s risk profile, as it actually identifies the investor’s capacity to handle market volatility. Thus, an investor’s risk profile does not change depending on the investment being made but remains consistent. However, it does determine a range of advisable solutions for the client.

Your time horizon is the period during which you intend to forego access to your financial resources to invest, and your horizon could be short, medium-long or long.

The first step is to understand these time horizons regarding future expenses and goals to determine the best plan. It’s also important to estimate the possible evolution of your income and savings to highlight moments in life when an income supplement might be needed, such as maternity leave.

Short-term horizon: 0-3 years

An investor with this horizon has planned expenses in the short term and needs liquidity for the regular management of their savings.

In the short term, it’s crucial to assess whether that income covers the expenses, what the resulting monthly savings are, if there are any planned expenses within this timeframe and the possibility of having to face unforeseen events. Also, consider any insurance coverage in place.

In this case, the adviser might prioritise a low-risk investment, aiming primarily to preserve the capital or, if necessary, to supplement it. The short term, in fact, does not allow time to recover from potential losses.

Medium-term horizon: 3-6 years

The three-to-five-year horizon is one in which one might consider managing a significant proportion of one’s assets. Your priorities could change within this timeframe since you might not yet have a specific goal.

The flexibility of the investments proposed by the adviser is fundamental for planning expenses within this time horizon. The core part of the portfolio for an investor with a medium-term investment horizon must be allocated with careful attention to risk management and unforeseen events, therefore favouring diversification and flexibility.

Let’s remember that during this period there might be important goals and needs related to our future or that of our loved ones, such as setting aside funds for children, or more generally, protecting your family’s financial security. With more time available, you can certainly move towards more dynamic instruments, taking advantage of the time on your side, thanks to the effects of compound interest.

Compound interest is a fundamental element in the long term because it represents the interest earned on money that was already earned as interest – a sort of interest on interest.

Long-term horizon: 7+ years 

This is a very long investment horizon. It allows for maximising the search for returns while always using diversified instruments and respecting the investor’s profile. From a long-term perspective, it’s possible, provided the risk profile allows, to accept greater risks in an attempt to achieve higher gains.

Other factors that could influence the investment must also be considered within this time horizon. Inflation and forecasts of its potential trajectory should never be ignored when aiming for a future goal. As the time horizon increases, this aspect becomes even more critical.

Retirement

As of today, the pension system’s situation necessitates some preventive considerations regarding the pension gap, which is the difference between the first pension payment received and the last pay earned in work.

First of all, it’s important to ask: what will the pension gap be? One needs to have an idea of what their pension will be and how much will need to be supplemented each month. After assessing your situation, you should consider leveraging the available time to potentially bridge this gap.

The duration of an investment aimed at retirement corresponds to the time from the moment of investment to the moment of retirement. For a younger investor, this represents a longer time horizon, meaning the risk—and therefore the sought-after return—that this investment can withstand is certainly higher. Despite periods of decline, the long horizon allows for the absorption of potential market turbulence.

This investment strategy can undoubtedly endure more periods of volatility. Despite periods of decline, a long horizon allows for the absorption of potential market turbulence.

Investing without emotion

Investing with your time horizon in mind also means having a strategy against your emotions. The longer the time horizon, the better market turbulence can be absorbed. The temptation to exit the investment during a downturn is always present, but when investing with your time horizon in mind, downturns are less intimidating.

This also implies that a long time horizon allows for taking on more risk in the portfolio, aiming for more interesting returns.

Know your adviser

It’s also important to understand who you are consulting: whether it is an independent adviser or one who is also compensated through retrocessions. Today, there are hundreds of options available for investing your savings, but the financial system is complex.

Part of our mission is to provide independent, competent, and transparent advice. We explain what you pay and for what, with no hidden fees.

The Cost and Charges Report is a transparent tool imposed by MiFID II regulations, designed to illuminate the costs associated with financial investments and which Moneyfarm always recommends analysing.

This document is crucial because it details all direct costs, such as management and trading fees, and indirect costs, which often remain hidden. It also highlights the total costs incurred relative to the value of the investment, offering investors a clear view of what they are truly spending—the impact of costs and charges on returns.

In the next article, we will explain how Moneyfarm can meet your investment needs based on your goals, time horizon, and risk profile.

You can book a meeting with a Moneyfarm consultant here.