Selecting a financial advisor is a major decision.
Word-of-mouth is probably one of the most powerful recommendations, and an excellent starting point.
Where to look to find a good, independent financial advisor
Selecting a financial advisor is a major decision. Word-of-mouth influence is probably one of the most powerful recommendations, so recommendations from people whose judgement you value is an excellent starting point. Two key considerations when one selects a good, independent financial advisor are transparency and trust. If you are not sure where to start, you can use Allan Gray’s “Find an independent financial advisor service”. Alternatively, you can turn to the Financial Planning Institute of Southern Africa for assistance. Don’t forget that it is important that you get to know your financial advisor before entrusting him/her to your financial affairs.
Here are six questions that we recommend you ask a potential financial advisor…
What are your qualifications and experience?
By law, all financial advisors must be registered by the Financial Services Board (FSB), and they need to pass regulatory exams and fulfil the FSB’s Fit and Proper requirements (including honesty, integrity and competency). All advisors must prove to the FSB on an ongoing basis that they are developing and maintaining their professional competence. You can also question prospective advisors about their academic or other credentials. Also, be sure to read the disclosure documents provided to you as these will also inform you as to which products your financial advisor is licensed to advise and offer you recommendations on.
Are you tied or independent?
An independent financial advisor is able to present you with options from the financial institutions that they have relationships with. This will vary, so it is wise to ascertain upfront which companies they represent. They run their own businesses and may operate as an individual, or part of a team of independent advisers. If the financial advisor works for a company, then he/she is a “tied agent”, meaning that they can only sell products for one company. They operate under the company’s license and the advice that they give you is backed by the company they work for, so you have recourse as a consumer if you are not happy with this advice. An adviser might select to work for one company only, as they believe in that company and its products, and also have access to the systems and compliance support that is needed to operate as a financial adviser.
You want to get to know the person in front of you and if they have your best interests at heart. Who they work for is minor in comparison to that. You need to know who will be there to guide you through the continuous changes, events and crises that will occur, either in your life or in the markets. It might also be useful to ask for some references – details of a few of their clients that you can contact and find out their experience.
How will you help me grow my wealth?
A good advisor will spend time understanding your needs in the context of your life and will draw up a plan that will ensure that you reach your goals. Your family situation, propensity for risk and other relevant factors will be taken into account when this plan is drawn up. It often helps to have a financial partner at your side who will help you to invest with discipline and to stay the course. . They also provide an objective perspective – a financial advisor’s role is to help you look at your finances rationally, and to not act for the wrong reasons. A good financial advisor will remain focused on your objectives, playing a a pivotal role in helping you grow your savings. Maintaining a relationship with him or her over time should also help to make sure that your investments are adjusted as your needs change, rather than in response to short-term market movements.
What is your fee structure?
Disclosure and transparency are important, so it is best to ensure that your advisor explains to you upfront what fees you will pay and how they work. Fees are usually charged as a percentage of the value of your investment and there may be an initial fee and an ongoing fee. Some financial advisors use a different fee model entirely, charging for the advice provided directly, as a rand amount, usually an hourly rate. You need to understand how the fees are structured and what you will be paying, at the outset. Fees cannot be charged or paid unless you have agreed to them upfront.
Have you bought what you’re selling?
Your financial advisor needs to be someone who believes wholeheartedly in what they’re doing. This speaks to integrity. Be a bit cheeky and ask them where they invest their money!
How often do I need to see you?
A good financial advisor will want to see you regularly. Annual reviews are industry standard, but a good adviser will make contact regularly through a newsletter or even just a phone call every few months.
You wouldn’t gamble with your health by not seeing a health professional. Why gamble with your financial future by not consulting a financial advisor?
A good financial advisor will tell you what you need to hear, not only what you want to hear. They make sure they look out for your future and your dependents, even when doing so is uncomfortable. And they force you to take your head out of the sand and look out for your future. With a good financial adviser at your side, you benefit from their wisdom and experience, knowing that your financial situation is secure, This allows you to get on with the joy and pleasure of life. This is what financial peace of mind is all about.
Article by YEI, in collaboration with Sylvia Walker
Sylvia Walker is an author, speaker and financial planner. Her latest book, smartwoman, is all about how to become financially independent and grow your wealth.