What does a Financial Broker look for in investment opportunities?

7th July 2020

One of the questions a financial adviser is asked more than any other is, “I’m thinking of investing in XYZ, what do you think?” So what are the factors a Financial Broker will consider before telling you to “go for it” (which they will rarely say) or to “hold on just a minute” (a much more likely answer)?

The reason that a Financial Broker will rarely give you immediate endorsement for an investment decision is because they don’t judge an investment solely on the investment itself. Instead they are much more interested in the suitability of an investment for each individual investor. What’s good for one investor is not necessarily good for another. So before they give you the go-ahead, they will want to explore a number of areas.

Your investment objectives
What are you actually trying to achieve with your money and by when? Your Financial Broker will want to understand your goals before they can judge the appropriateness of individual investment opportunities. They will also want to understand your timeframes, as different investments will suit particular timeframes, so it is important that your opportunity is in line with your time horizon.

Your attitude to risk
Is it slow, stable growth that you are looking for, or are you one step away from going to the racetrack with your money? A Financial Broker will need to understand your appetite for risk and indeed your capacity to take risk. If a small drop in your overall wealth keeps you awake at night, your Financial Broker will steer you away from high-risk investments, no matter how attractive these investment opportunities might look!

Your current portfolio
A Financial Broker will also want to get a picture of your other investment assets. How will this new investment opportunity sit alongside them? Will it result in you being totally overweight in a certain asset class or indeed will this opportunity add risk or remove risk from your portfolio as a whole? Will you be more or less diversified across asset classes as a result of this investment? This is really important, as diversification is a cornerstone of most investment portfolios today. All of these are questions that need to be considered before you dive in.

The investment opportunity itself
And then of course your Financial Broker will want to really get under the bonnet of the investment opportunity. Is it from a regulated provider, giving you a level of security? Indeed what is the financial strength of the provider itself? What are the charges that you will pay? If you decide in a few months time that this investment is not for you, what options will you have? Do they have other funds that you can access? And what’s the provider like to deal with?

In summary, you’re rarely going to hear, “Go for it!” Instead your Financial Broker will take a far more measured approach to ensure long term success for you.