How does a financial advisor benefit you? What should you look out for when choosing an FA? What’s the best stage in life to talk to an FA? Michael Borchert, Executive Director and Co-founder of Avrio Wealth, answers these questions and more so you can confidently find a financial advisor who’ll help you reach your financial goals.
In this episode, Michael Borchert, Executive Director and Co-founder of Avrio Wealth sheds light on how a financial advisor can help guide you to achieve your financial goals. Drawing from his many years of experience in financial planning, Michael dives into some of the things you should consider when looking for a financial advisor.
Some burning questions Michael answers in this episode include: How do you benefit from engaging with a financial advisor? What should you look out for when choosing a financial advisor? And, when’s the best time in your life to speak to a financial advisor?
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Also, our lawyers would want us to tell you that the opinions of our guests are not necessarily shared by StashAway, that past performance is no guarantee of future results and that what you heard is not investment advice.
Philipp: Thanks for joining us again in another episode of In Your Best Interest Podcast presented by StashAway. I'm super excited, today's topic is “The Top Questions You Should Be Asking Your Financial Advisor” . It's a super interesting topic and we have a wonderful guest joining us. He's not only very knowledgeable in this field as he is a Certified Financial Planner, but he's also become a good friend over the last two years now that we know each other. His name is Michael Borchert. He is with Avrio Wealth. He's an owner, Director at the financial planning company here in Singapore. And today like I said before, we're going to go through some of the top questions you should be asking your financial advisor, because there are a lot of people that call themselves financial advisors, and only a few that actually give very honest and genuine advice to their clients. That's something that we really want to demystify here on the podcast today. With that being said, Michael, do you want to give a quick intro about yourself before we get started?
Michael: Sure. Thank you, Philip. And again really appreciate the chance to be here on the show with you and share your knowledge with everyone. Just a quick intro to myself, you've actually hit on all the really major points. I am a Certified Financial Planner. I am an owner, Director of Avrio Wealth here in Singapore. I've been in Singapore now for coming up just over 10 years and I've been in Asia now for just over 18.
Philipp: Yeah, and I think this is the interesting part because even though we've known each other for a while, I know some of your background, I think it would be quite interesting to talk about some of those things that led you to be here in Singapore now. And being a financial advisor, we always like to speak to our guests and learn a little bit more about them and also about some of their money habits. With that being said, we both met I think it's almost two years ago. I remember quite vividly we were at the SGX auditorium, I was listening to the, I think it was actually the CFP, some kind of CFP conference. And you were at the time giving a speech there. I took the courage and walked up to you and introduced myself and ever since we've been in touch and also been working on a few projects, but I think that was the time right? I think about two years ago.
Michael: That's just over two years ago. Yeah. That was the Financial Planning Association of Singapore that was one of our market reviews and I was the moderator for the panel with the specialists. You came up and caught up with me afterwards and it's been really good working with you and StashAway ever since.
Philipp: Yeah, this was we've known each other for quite some time. But even though we do we did have some coffee chats and dinners together. I think it would be still nice to know a few more things that I'm also quite keen on exploring as well. You said, you've been in Asia now I think you said 10 years here, seven years more here somewhere else in Asia. But where did you grow up? Where are you originally from?
Michael: I'm actually originally from the United States. I actually come from a military family. I grew up living all over the US, actually grew up in Mississippi, Texas, Ohio and North Carolina. I left the US just after I graduated college, and I started a job in Shanghai, China. I've been in Shanghai for about eight years, and then moved to Singapore, just directly from there to actually start in personal financial planning here in Singapore.
Philipp: Yeah, interesting. Let's go back to the, I'm always interested in how your upbringing shapes people's lives not only just personally but a lot of times financially as well. Depending on what your family was doing and how they were managing finances. By being in a military home and growing up in that environment, I assume there was a lot of strictness maybe [05:00] or certain things have to be a certain way. Anything from that background that now still shaped your personal finances at all?
Michael: I would say in terms of how I really got started on the financial advisor track actually tracks back to my dad saving for my university fund. What he was doing when I was basically a child up through when I was a teenager was he was investing in mutual funds. When I was about 10, I started asking him questions because he would get up on Sundays and read the paper and was just checking the mutual fund reports from the newspaper as you did back before the Internet started. Yeah, we're that old. I started asking him about it. He said, "Well, let me show you how everything's done and let's get you involved in this." So I actually started doing, when I was about 10 or 11 is when I started actually doing some initial research on how mutual funds worked, why we were saving with them for college. Then I got involved in it, actually he had me set up a bank account so I could start saving cash and then move on from there. Most of my life, I've been somewhat involved in financial planning and I think that's really what sparked my interest in finance going forward when I went to college. Then everything I've basically done since I've graduated has been basically involved with that. I'd say it definitely was part of my upbringing.
Philipp: It's super interesting that your dad started and you actually took an interest in it because I think for me exactly, it was probably the opposite. Because in Germany, people tend to not invest in stocks and bonds in general. It's mostly real estate, cash savings, and things like that. So I never was really involved in it until I did my high school exchange in the US and I was living with a family there and my host dad was in finance. They had their own firm doing institutional money management, which then sparked my interest in letting me go to university and study finance. But yours was much earlier and I've been hearing this is a very cultural difference actually. Because in the US, it's so normal because college tuition costs, so people start saving and investing for their children. So they get exposed to it. It's very interesting to see the differences between maybe Europe and the US and then also Asia. Super interesting to hear your story there.
Michael: Now, in terms of where that took off from, in college I did study International Business, has an economics minor. So again, still staying along that finance track. Then when I worked in China, I actually worked for a small business firm that was doing basically joint venture finance for companies between the US and China, working on supply chain management in some other areas. That again, is continued through, I worked with a lot of small business owners in that job and a lot of questions that I'm still getting today actually I had a great experience working with them because I saw how small business owners were focusing very much on their companies and sometimes forgetting to focus on themselves. To this day, believe it or not, I still see that happen. As now a full time planner, a lot of those experiences have translated and evolved with me into my job here as a Certified Financial Planner.
Philipp: I think it's certainly true. I had the same experience, especially the people we were advising back in the US as well as a lot of business owners. Because they are able to create a lot of value for their business which translates into paper wealth but it's not very diversified. These people are like, they're so focused on growing their business, making payroll, taking care of their employees, that they spend very little time on actually looking at their personal finances. What's next? What if they don't have children? What if they have children? Do they have a succession plan? Or do they want to sell the business? Because the asset is still there that they've been building for such a long time, right?
Michael: Yeah, there's a lot of, we do go into the client specifically in that situation. Trying to build out a plan for them that incorporates their business, how do they want to value themselves within that business and how do they want that business to reflect as a goal or as part of their plan, long term, short term with all those things.
Philipp: Yeah. Totally agree. What I do like to ask every one of our guests, because I think we always get a lot out of it, and I think we get listeners from young to old. I think this one resonates with everyone because it either makes them think of what I want to do first or I had a different experience or the same experience. And that question is, [10:00] what is the best investment that you have ever made?
Michael: That's a good question. I'd say the main answer that jumps to mind with that actually is, the best investment I ever made was actually investing in continuing education for myself. Because in terms of I would say, if you look at it from a financial perspective, when I've done things in my life, i.e took extra courses, studied and became a Certified Financial Planner. In terms of return on investment I think education is the best you'll ever see. Getting a college education, going forward and getting advanced degrees or just getting advanced qualifications within your own profession, I think really helps you build a better business. Helps you really understand what you're doing and have a passion for, but also really gives you a return in terms of what you made. Beyond any kind of single, hey, we picked this stock or we did this investment or anything else. I think investing in yourself, believe it or not, puts you in a position to make more than any other best investment idea you can have.
Philipp: Yeah, and I think that's an answer you'll hear from a lot of people because I think that people who did go through this and did get advanced degrees or continuing education will always put this probably right at least in the top three of each list, because it really gives you some satisfaction. You worked hard for it on top of it and so the outcome is even better, and the feeling of accomplishment on top of that. So I think a very good one to list here. The one other thing before we switch gears and go into the actual topic of questions that anyone should ask their financial advisor is, what was your first purchase or investment that you have made when you got your first paycheck? Do you still remember this? I know it's a long time ago. I had this with Freddy before, I think with Freddy it was he paid off or he started paying his parents mortgage in Malaysia, but for everyone it's a little different. What was it for you?
Michael: Wow. Okay, my first job, my first real job that I ever had, I could say in terms of getting a paycheck from was I worked at a local dive shop when I was 15. To be quite honest, the first thing I bought with my first paycheck was gas for my car. I took care of it yet I didn't take care of everything on my own and in order to have a car to go to high school, which again is a very American thing. In order to do that I had to take care of all those expenses myself so that I could go to school and then I could go to what I was doing for studying after school, and all of that I actually had to do to pay for my own expenses. I'd be honest, that was my very first thing I paid for, was gas for my car. Nothing as noble as paying for my parent’s mortgage.
Philipp: No, but I think the one you're now mentioning is what a lot of people have to do. So you pay your daily expenses. You can't rely on your parents all the time. I think it also teaches a valuable lesson of the value of money. How you work for it, you're going to be much more careful about how you spend it than if you're getting an allowance from your parents. Because it feels like if you get an allowance from your parents it's more like casino money. It's much easier to spend than if you really worked for it for a month and now you have to spend it on gas for your car.
Michael: Yeah. My first experience with budgeting literally was when I had my first job trying to make sure you covered all your bases for what you had for expenses each month and then what you were making because again the hours you worked, where I worked at my job were dependent upon A, going to school, B, because you work the weekends were they off because sometimes the shop is closed when they're on trips and other things. So it was an interesting process again. The things that have shaped you and pushed you into what you love doing. That's definitely one of the other connections I'd say I had from that. Was just learning how to take care of money on my own. That's some important lessons.
Philipp: Yeah. Super important lessons for people to learn because especially since it's not really taught in school. So these are the life lessons you learned along the way. I feel or if you know some people have mentors or their parents are very good at it or grandparents or whoever does teach you or not, you'll probably have some stories from clients that never went through this when we talk more about financial advising. But before we get into this, for anyone, everyone probably has heard the term Financial Advisor before, some people [15:00] probably have very fond memories, when they hear financial advisors, some have probably like, fold their hands in front of their face and sighing, because they might have had a really bad experience. I think I've seen both from being a financial advisor now for almost seven, eight years as well. So you see both. Why is that actually and I think hopefully we can demystify some of the things with you Michael today, but I think the reason is twofold.
For once, I think in Asia specifically, financial advisors are still seen a lot as sales agents. Even some insurance agent or someone working for a brokerage firm might say they're a financial advisor and they want to do a financial plan with you. But my experience so far talking to clients here, and experiences from friends and family here, you often get the feeling that they're only wanting to do a financial plan because they then want to sell you products. And these products can be very expensive, they can be not suitable because the financial plan has not been done really well. I think that's a big difference because what I experienced in the US especially working there is that, a financial advisor there looks at everything a little bit more holistically and there's also different ways of compensation that we're definitely going to get into today and what should be the best case scenario when it comes to compensating your financial advisor. I think it's a topic that is very universally interesting for a lot of people because there is no one size fits all step and hopefully will help you to avoid those in the future. So, Michael, with that being said, let's get right into it. Maybe you can explain I tried a little bit here in the intro, but maybe you can go a little bit deeper on what actually a financial advisor does.
Michael: Okay. I think in terms of making that an easy to digest question, I look at a financial advisor as a person who helps you build your financial plan. And a true financial advisor will always start with a financial plan. In that financial plan, you're going to go through your goals, go through your dreams, and bring into, I would say to bring into focus, not only what you already understand in terms of what you may have already built into your plan, but also help you bring up ideas that you may not have looked at yet. I think that very much ties into what you said about being holistic. We want to take a look at not only your whole entire financial life, but how does your financial life actually interact with your real life? What do you want to achieve? What are you facing currently? What are questions that you have about many areas of aspects of planning and even going into areas like what happens if you're gone? What about estate planning? What about all those things that you may not have thought of?
I think in terms of what is what a financial advisor does beyond just starting out in terms of looking at a financial plan, I think a financial planner should really listen to you and at the same time ask questions to really understand you better, not just, "Hey, fill out a financial questionnaire." But really get to understand you and how you think. I think a financial planner should educate and really help people understand what it is they're looking at.
Philipp: I think that a lot of times people don't understand what they are actually buying.
Michael: Yeah, from a purchasing perspective, but just on the overall idea of why is retirement structured that way? Education goes along many, many lines. I think that with a true financial planner, you have the benefit of actually being able to get that education and being comfortable with somebody who you can ask those questions too. Again, I don't want to just list too many things here, but above and beyond that really help you separate emotion from finance. People sometimes, money is important to people and there's a lot of emotion attached to it. You earn it. You feel good about it. And in terms of trying to use money or your finances to forge your life and forge your goals, at what point can you be emotional and sometimes how do you separate the emotion from that and help you better understand what you can do yourself for your plan?
Philipp: Yeah, I agree. [20:00] What would you say that and so when you go, let's say you're about to meet a client, maybe it was a referral or whatever. You don't go into that meeting thinking like, "Hey, what can I sell this person?”
Michael: No.
Philipp: What is your mindset going into that conversation? Why I'm asking this, this is for people to understand what goes through a financial advisor like you when you first meet with them. The end-
Michael: Result of that. Okay, that's a really good question. Let me answer it. I think a little differently. When you're somebody who's looking for help with your finances, I think you first want to ask the person that you meet, i.e., if you were meeting me, how do I see myself as a financial advisor? In Singapore, we are all labelled as financial advisor representatives. That is mostly what our licenses call us. But that doesn't necessarily mean that's what we do as a process in terms of working with you. My process is I provide a service. I go in to sit down with a client, explain to them how I work, see how they want to work, understand their expectations, and know that I always start with a financial plan. I don't go in to say, "Hey, today I'm going to sell you insurance or today I'm going to try to make you do investing." Believe it or not, when I have a referral client come in, some of them will come in directly and say, "Hey listen, I really want to invest money." And I'd say, great, okay. But can we figure out why you want to do that? What's the money for? What's it about? It's not just opening an investment account and starting to invest.
Philipp: I think it was really important. I think that part about even though they might, or in their mind, have a goal of the meeting, you're trying to uncover what's underneath. Almost like peeling the onion back slowly, to get a very better understanding of why they want to do this. Because there's more usually to it than what the client, he has maybe the end goal in mind, investing money, but there’s steps along the way that would be beneficial for them to talk about and for you to learn.
Michael: Yes. I think as from a client perspective, I think they should be peeling back the onion on the advisor as well. I mean, I know that some of the questions will probably go through regards to how do you get paid? What do you do? How are you qualified? I think a first meeting that people go into should be one for your advisor to learn about you, but you just as much to learn about your advisor, and really understand is it something, do you want to work together?
Philipp: Yeah, that'd be like a personal connection, but there also has to be you have to have trust from both sides, right?
Michael: Correct. Yes.
Philipp: I think one of the things that people, also, before we get into the commercial aspect of that, that transaction or the meeting between an advisor and its clients is, what do you say to people that are younger or that are saying, for example, I don't need a financial planner? When do you think people should use a financial planner? Is there a given age that someone should use? Do you send people away if they're too young or do you still give them some advice? What is the sweet spot of, "Hey, I think it's time for me to, I'm not just dabbling into saving a little and putting into stocks. But now it's time to sit down with Michael and actually go over the financial plan." When is that to you that sweet spot?
Michael: See I'm biased. I'm a financial planner. So I think everyone needs a financial plan. But I think that the financial plan does change based on where you are in life. If you're just getting out of school, do you need a long complicated drawn out financial plan that goes into super detailed aspects of maybe what you're facing with retirement and estate planning and all that? It's good to touch on that definitely when you're just coming out of college or younger in your 20s. But I think a financial plan at that age would focus more on getting cash flow management together, understanding what your buying power is, starting to define some of your goals. When you're in your 20s just down the road, probably want to buy a house, maybe get married, maybe travel a lot. How are you setting up your finances to work on that? I think a financial plan can help with that. I don't have a single financial plan that fits everybody. My financial plans do change based on where people are in life and where their priorities are.
Do I believe everybody should have a financial plan? Yes. Will all the financial plans look the same based on where you are in age and what you're dealing with? No. They are different for every client in that sense. But if you're younger, [25:00] you're going to be focusing on different things than if you're older most definitely. Do I think you can still get a lot out of planning and questioning? The younger you start planning the better off you are.
Philipp: I always tell people in any kind of seminars that we give and stuff and you show them the power of compound interest and getting just even in the habit of saving and investing for the future. The earlier you can do that it becomes that habit and once it's a habit, you're on the right track. But again, the earlier the better not to say that you shouldn't ever start. If you're later on in life, but the earlier you can start must totally agree with you on that.
Michael: Well, very quickly on that. The other thing I think people learn from a life lesson is, once you get out of college and start working, life tends to speed up quite quickly. Because you're not breaking up life for changing grades or moving from being a sophomore in junior college all that. You're in, you're out working, you're out doing your thing, and you'll blink and its 10 years down the road. Again, I think that's why it's an advantage to have a plan in place because it does help you start early, keep on track and know when things are changing, so that maybe you need to update that plan.
Philipp: Yeah, absolutely. That hopefully clears up a lot of the questions a lot of people have. Because it is a tough decision to say "Hey, I'm too young. I don't have enough assets to get started." But I think there's like you said no right time, the right time is now and the sooner the better. But let's move on. You touched it already a little bit. One of the big questions I talked about already, advisors selling products and using financial plans just for that scenario. But how do financial advisors like you get paid? And what would you say is the ideal compensation methods so that you are mostly aligned with your clients and the client gets the most out of the exercise as well.
Michael: Okay, a couple of good questions there. If it's okay, I'll touch on them as we go through the details. In terms of how we get paid, I'm what's called a fee-based advisor. My fees are transparent to clients. What I do is if you simplify my services, they're broken into two parts. One is, I get paid a set fee for writing a financial plan. So when I meet with a client I go through, we look at what we want to achieve, how we want to structure, we have a number of meetings, we work together, we go really in depth and we build a plan. There's a full report attached to it. There's a lot of advice and education that go into it. There's effectively a lot of value-add, but that is a set fee. Then if clients want to continue working with us, if they want us to open their investment accounts, start structuring that work on that, we have a separate fee and structure for that. In Singapore itself, the division, the idea of are you fee-based or are you commission-based is actually quite new and the rest of the world, like you worked in the US, I come from the US. Europe, Australia, Japan, most countries are moving towards a fee-based model. Commissions are starting to disappear from the industry because of what you mentioned. They want the advisors’ interests to be aligned with clients.
In Singapore, we're moving towards that. My firm in terms of we are new in Singapore in terms of we just started. But our fee-based approach, all of myself and my partners have been following this for quite some time. Not all firms in Singapore are fee-based. Some of them are commission only. And it's not that all commission advisors are bad. It's just that when you're sitting down with someone with an advisor, you want to make sure you're asking them, "Hey, why are you suggesting this? Does this fit my goals? And why are you suggesting something over something else? Are you doing that just because you get paid more?" Those are good questions to ask. The systems themselves in terms of just history, that's why we are where we are as a market. It's not bad or good. It's just where it stands. But I think you'll find that our focuses are slightly different. If you met with just a standard insurance agent who just sells insurance, their focus is not going to be primarily on financial planning. It's just going to be say, "Hey, what problems can I solve from you? And what products do I have that fit that model?"
As a fee-based planner, and as a true financial planner, when you're writing a holistic financial plan, you're going to be looking at many different areas. And some of those areas may be just cash management, how do we kind of rearrange your budget? What we call cash layering or cash structuring, hey, listen, maybe you need to set up an emergency fund. Just to make [30:00] sure you've got cash for you in the long term. Have you done an estate plan? Can we talk about what an estate plan looks like? Most of the time, in a traditional commission model, you wouldn't be getting compensated for that advice. That would be effectively unfortunately taking away from what may be helping you buy a product or have the client invest. So in terms of how do you align interests? What are you looking at? You want to make sure you're asking that question of your advisors and if you're looking for a financial plan, just looking versus just buying insurance, or buying an investment, you may want to be asking yourself what kind of advisor you want to work with. I think that would help give clients focus in terms of asking the right questions, but also know what is it I'm trying to achieve so that they're better prepared to ask and they're also really working with somebody who is aligning their interests with what they want.
Philipp: No, I think those are all really good points and you touched on it a little bit obviously on the commission side of things. So in Singapore, what I have the feeling and I work at StashAway, but we do digital advice and things like that. But what I hear from friends and also colleagues and people more locally from Southeast Asia, is that they still don't really can wrap their head around the fact of fee-based because it's so transparent like you said. It’s here is the fee, it's 1%, let's just say. It's 1%, whereas, if they're being sold products, there's a lot of times these fees that you can't see. So they might look because it's not an ongoing yearly fee in your mind, because not straight, you're not showing this as the advisor. But there's a lot of hidden fees. When it comes to the total all-in costs, it's very important to understand that do you have any advice on how people can decipher? What is an approach they should use before they get into a relationship with a financial advisor or buying any kind of product?
Michael: Okay. Actually, I think that's two separate, it’s a good question I think but it's two separate parts. In terms of working with an advisor, I know many insurance agents here who are good insurance agents. I know many of them who do part of their advisory processes, they do still give some financial advice. It's simply that their model or how they provide their service is funded by commission or assets under management. Whereas someone like myself is very service-based, think of us like a lawyer or like a doctor. And as you spend more time, there's simply more fee. Or if there's more complexity, there's a fee for that on a continual basis. I think separating that, from looking at it from am I looking for just financial advice? Am I looking for somebody to help me build a plan? Or am I trying to work with somebody just because I feel like I need life cover. I think that's going to help you determine your focus in terms of A, who you want to work with. B, what kind of goal you want to achieve, and also prepare you for the questions to ask. When it comes to purchasing and how do you get transparent on fees and how do you break that down? When it comes to a process of, I'm looking at an insurance plan or I'm looking at an investment plan or I'm looking at these products that combine insurance and investment like a whole of life plan. The most important thing to do there is to do comparison. All insurance plans sold in Singapore have what's known as a product illustration and if you ask your advisor to go into depth on that, and I suggest that you do, it will break down-
Philipp: That's very complex to look at.
Michael: They are complex, but they do have single pages that point out how much distribution cost is attributed, i.e. how much commission is paid. The product brochures are going to break down what's going on, but it is part of the advisors job to go through that with you and make sure that you do understand the product that you're purchasing so that there is transparency in terms of A, how does the product charge fees and B, how does the advisor get paid from those fees? Because remember, not all the fees go to the advisor. Some of the fees you're paid for the insurance and other ideas. So the best basis for that is to compare, if you said I just want insurance, should I take term which is just basically paying a premium for coverage or should I take a whole of life which may be a combined investment with term. Many advisors are going to have different philosophies on that. But comparing those and asking questions as a person working with an advisor is your most important tool in terms of really understanding that and if the advisor gets impatient or doesn't want to explain it to you, then you may be starting to run into somebody who's maybe not a good agent, they're just trying to sell you something, get a commission and move on.
But there are a lot of good, I [35:00] never want to make it sound like if you're a commission-based, you're a bad advisor, there are a lot of good advisors out there. It's just understanding what their priority is in terms of their process and whether that process matches with you.
Philipp: I think you made a good point. I think doing comparison shopping is always a good idea. Most people do it for every other product that they ever buy, right?
Michael: Yes.
Philipp: So, most people if a product is more than $100, most people will do some kind of comparison especially nowadays with the Internet making everything so transparent. You will be able to compare different products that are within the same sphere, what is the cost? Cost is maybe not also always the best indicator if it's a good or a bad product. But at least you can do quite a lot of research already online to get an opinion from third parties as well. I think that that goes especially for financial products because usually, the impact is quite big, it's a large sum of money, and it's an investment for a certain period of years. So you want to really dig into it and get comfortable before you purchase anything in that regard. With fees out of the way, I think that was a very great overview Mike. What are some of the qualifications that someone should look into their advisors? Let's say, is there anything where you say, "Hey, if they have this qualification, I would feel much more comfortable going with them in the first place?” Maybe it is like you get recommended a few people and maybe that's the first thing you're asking for.
Michael: Well, I think it's important. It's a good question and it's good that people understand what they're looking for when they meet with an advisor. I think if I can again use the comparison of thinking about, say, a doctor or a lawyer as a service-based idea, I think we should follow along the same lines. When you're a doctor, you go to college, and then you go to medical school, and then you go to residency and you have to do many things in order to qualify to be a good doctor. To be a lawyer, you have to go to undergraduate school, then you have to go to law school, then you have to pass your exams and then you normally work with older lawyers to learn the profession. In financial advising, there's been a very big push over the years here in Singapore as regulation has required that advisors carry more and more education and base qualifications in order to do the job because just like a lawyer and a doctor, we're dealing with very important things, which is your money, your financial future and your life effectively. In terms of coming out as a financial advisor, in order to qualify to be a financial advisor representative in Singapore, you have to pass a number of exams. And beyond that, you have to have I believe, now the minimum entry is you have to have a college degree or equivalence and you have to take exams and not have been arrested or have a bad background in terms of that.
Because there's that difference of if you can take some exams and become a financial advisor, I think it's important that if you are... Again, there are very good advisors, that's what they have. That's a basic qualification. But if you're really looking for an established qualification on top of that, I would look for advisors who have invested in their profession, or invested in their career a little more and gone for advanced qualifications like Certified Financial Planner or Chartered Financial Consultant. Those are two qualifications that are done by two different certifying bodies. But to be honest, they're very similar in terms of the fact that in order to go for the qualification and study, you had to have been an advisor for at least three years, you've had to had a previous experience being an advisor, you get into the program, you have to do a lot of in-depth studies. Usually finishing the program takes anywhere between a year to two years depending, you take a number of extended exams, you have to get really in-depth into specifics on things like financial planning above and beyond just investing or insurance, but actually putting together a financial plan. Depending on what you're looking for, if you're really looking for someone who's got a focus on financial planning, then I would look for it basically an advanced qualification, like Certified Financial Planner or Chartered Financial Consultant as a minimum for working with an advisor.
Philipp: Yeah. Thanks for that, Michael, because I think that's quite interesting because a lot of people, there's a sea of them. Like you said before, everyone is called a financial advisor if you’re in that field, so it does make sense to do the comparison also between different advisors. Get a feel for them. You don't have to sign on the line in the first meeting either. So, it's all about asking these questions and peeling that onion we said earlier today. [40:00] Let's switch gears here for a second and talk about investing. Because one set of questions we went through now it's more about the relationship with the advisor, how does an advisor get paid? What do they do and what qualifications do they have? But let's go to investing because a lot of people when they think about financial advisors at some point, they think about investing. Because you go to the financial adviser, you get a financial plan. At some point you need to start investing to reach your goals such as retirement or kid’s college. Like you mentioned earlier, your dad started that when you were quite young. What are the questions that you should ask the financial advisor when it comes to investing?
Michael: Okay. I think taking a look at this, the questions I'm going to through this are going to seem a little different than normal. I think a lot of people when they start talking about investing, they immediately get focused on how much am I going to make in return and what am I investing in and other things. Those are good questions in terms of understanding what you want to do with investing in the long term. But I think some of the base questions that you really need to ask yourself and ask the advisor you're working with, if I may just list a couple. First is, how does this investment or what investments I'm looking at really align with my financial plan? Because in all reality, investing for investing's sake, sure we want to have our money grow, but answering that question of what does this investment do within my financial plan really will help you define many aspects of that investment, i.e. time horizon, how long you're going to invest for? What kind of risks or associated kind of portfolio asset allocation do you want to start using with that? What kind of currency? How much am I going to be saving? How do I save? Do I do it monthly? Do I do it annually?
Philipp: I think this is the importance of doing the financial planning piece? Because we do some of our academy seminars and module one is financial planning. Module two builds up on that and it's investment planning. And so, you get many more people wanting to go to the investment section, but they never went to the financial planning section.
Michael: Yeah.
Philipp: I know the sexy thing to do is the investment part. You have to have that solid work of a financial plan done. You have to be financially-savvy to graduate to investing and I think is what you're trying to say here as well.
Michael: Yeah. Building upon that, agreed you need to really have that plan in place. Why am I investing and how does that reflect my plan? Beyond that, before you even start investing is asking yourself have I built a foundation in my plan that allows me to invest. Many times for clients when we're working with them, there are some baseline things we'd like to see them prepared with before they actually start investing like an emergency fund. Potentially depending on everything, a tax fund. Having some things in place so that the one thing we tend to see people stumble on is they're in such a hurry to start investing, they started investing all of their cash. Then when you have something like happening right now, with the pandemic, there may be a job loss or there may be something that happens where they have to access their investments to get cash and unfortunately, it's not the right time to be pulling money out of the market. So they didn't have like we work together on the seminars, a plan B, they didn't have an emergency fund. Sometimes it's good to ask, am I ready to invest yet? Am I prepared in my financial plan to actually start investing because remember, when you start investing you want to be investing for the long term, you want to be investing with certain strategies in mind so that you can control your risk. The third thing, and I don't want to cut too far ahead of this, but I think the third thing you really have to understand and you need to ask yourself is, do I understand risk? And do I understand the risks associated with investments? And what is my capacity for loss with this investment and within my entire financial plan, so that I'm better prepared to invest and I'm investing in a way that really meets my own feelings, emotions for investing and my own what we call risk tolerance.
Philipp: Yeah, I think that's important and I think this is where an advisor can help quite a bit as well because a lot of people like I said, the sexy thing is the investment piece so it's not, especially in Asia, usually savings rates are quite high. So, savings a lot of times here from what I see is not the problem. Here it's more the investing piece. I think you said it quite frankly, you see a lot of people, yeah, they have some investments. They bought some stocks or they bought some REITs or some real estate, but without a financial plan and then they come to you [45:00] and what are you going to do now? Now, we have to decipher why did you make these investments? A lot of people don't actually ask themselves that question. They just know, they need to invest because they talk to their friends and they're investing. And you always want to talk about nice gains, or I bought the stock at the right time and things like that, right?
Michael: Yeah, a lot of people do, but they're attaching that emotional part to it I think in terms of, hey, I made a gain or I got a lot of good things out of it. And investing is sexy. It's fun. It's interesting. Again, it's part of a passion of what we do for our job. But it also has to be paired with the plan. It has to be paired with your goals, and it has to be paired with you because what you want to do, maybe what's best for you investing may not be what your friend is doing. Maybe they've got a lot of excess cash and they're doing a lot of risky things that may not really fit within what you need.
Philipp: It's a very personal process to find out because everyone is different, you and I will be in a very different situation. So, you have a wife and a child, I have a wife but no child, so we are already in a different situation. What that means our goals are probably different across the board. I think it's something that is few exercises that everyone can go through. Before we wrap it up, I think one other question that I would like to have your opinion on is, why would I work with say yourself or another advisor, versus just doing it myself? I think we touched on a few of those points already just now. But is there anything else that you want to add on why it makes sense to work with an advisor?
Michael: A hundreds of things.
Philipp: Go ahead. I think they are interesting to hear because I think a lot of times people think they can do a lot of things on their own. And they say, why would I just pay someone to do this when I can just rather do it myself and save some money.
Michael: Again, I want people to be comfortable knowing that there are things that you can do on your own. What you're coming for, what are we effectively, what's our value-add above and beyond just doing it myself? Let me summarize a couple of things and let me talk about some other stuff. First off is, you really coming to an advisor for I would say experience and expertise. One of the things that I've been fortunate in my job is I've worked with many people, in many walks of life that have done many different things. So, I've seen a great many things and part of my job is to condense all that and have it help apply to your specific plan. To get all of those years of experience and knowledge put all together at once and to help you specifically is a big value in terms of doing it with somebody else rather than just doing it yourself. Adding to that is the ability to be educated. Again, there's a ton of knowledge and time and studying that we do as advisors to really learn about finance. And in working with an advisor, we take extremely complex subjects, and we're able to communicate them and as you said boil them down to simplicity, but we're able to cipher through and pick out the important things that you need to know and understand so that you can make better financial decisions. So education's a really big part of what we do.
The third one which is a big one for a lot of clients is time. People just don't have a lot of time. They're busy with families, they're busy, like you said, small business owners are running a business, people are in careers that they're pushing hard for, they're spending time travelling, having fun doing all those things. When am I going to sit down and put all this together and make it work? That's the great thing about an advisor is, we can save you a lot of time.
Philipp: A lot of time. I think to that point, the hand-holding piece you can't underestimate, especially with people, like you said, busy travelling, a lot of work, maybe they have a child, a wife. Life gets in the way. The last thing on your mind is spending another two, three hours in the evening after work on your personal finances. And I think that's where a lot of the value comes in. Also the hand-holding, like you said, you always tell the story that one of the big value-adds is for example, when people buy, let's say term life insurance, it's over a certain amount of coverage. They need to go to a doctor and do some tests to get qualified. Life gets in the way, they will not do it, they forget about it, they set the appointment. I think this is also where the advisor can come in a lot and hand-hold and make sure you do the things. He's your advisor, you're working together.
Michael: That evolves even more into what I think is the most important part of my job is the partnership. For a lot of our clients, this is a long-term partnership [50:00]. And when you're hopefully a good advisor and you have good clients, you get to work with people for the majority of their lives and you get to see their lives change. You get to see them go through things, they achieve goals. Unfortunately, you also see catastrophe. And there's a partnership there because you were there for them, when they have questions, when they have things they just don't understand. You're a person that they trust and they know that they can come to you and ask you and that hopefully you're going to give them an honest response that's going to be again for them and in line with them. That's even more important than a lot of these things is establishing that trust and being with them.
Again, when you're working with an advisor, they’re your partner, we were doing an activity with my partners and I at Avrio and we were trying to come up with, what are our services we provide over time with clients that we work with over the long term? I mean, the minimum we came up with was 50. We do a lot of things for people, some of those things you'll never see because they're done in the background, outside of our meetings. Some of those things are done directly with you, the research and the ability to help you with complicated questions or new items. Simple things like hey, did you check your tax return and did you take all your deductions? That just saves you a bunch of money but it's a little thing that adds up and again, that expertise in things that we can do over time with what we collect and what we continue to work on can help. Again, I think people can do...I have clients that come to me just for a plan and they self-direct their investments, fine with that. I have clients who come to me and they want us to do everything. And I think understanding that part of yourself when you're working with this advisor will help you define that in terms of how much you do want to do on your own and how much you want to do in concert with your advisor. But again, I think there's a lot there that we do for people.
Philipp: Yeah, we could probably fill a whole show just going over this. Mike, I think we had a really good chat. I think everyone will think one or two or all of the things you said are going to be valuable for them. I think it was even valuable for me. I learned a little bit more about you, about your background, which was interesting as well. But yes, this is a super important topic. Great answers and great things for our listeners to take away from. So, thank you again for joining me here.
Michael: Thank you for the chance to share. I really appreciate it.
Philipp: Yeah. I really appreciate it as well to have you on the show. I'm sure we'll have you again, there's so many more topics that we can cover where you're the expert in. I'm sure we'll have you on again for the listeners. But with that being said, I know you still have to say something for being a license holder for your firm. Do you want to go ahead?
Michael: Yes. Just for everybody in terms of what we have to do for our standard disclaimer is just to let you know that everything I've talked about in this podcast is intended for educational and informational purposes. It's not intended to provide specific advice to you, or an individual. If you have any questions, please do consult with your advisor, tax advisor or attorney. Again, the views I express here are really that of myself, and don't necessarily reflect those of my firm. If you have any questions, dealing with myself or my firm, please visit our website, www.avriowealth.com for more information and thank you again.
Philipp: Yeah. Again thank you, Mike so much. It was a pleasure having you on. Thank you to all the listeners, as always, any feedback is welcome so we can improve along the way. So be it. We'll be with you again in the future, and we'll speak soon. Thank you, Mike.
Michael: Thank you, Phillipp. Bye.
Philipp: Bye Bye.