How to choose a financial advisor

Twenty years ago, most financial services companies and professionals stuck to their knitting. Stock brokers sold stocks, real estate agents sold homes and banks accepted deposits and issued loans. But the rise in the early 1980s of the one-stop financial planning industry, coupled with deregulation, blurred the financial services picture. Today, an increasing number of bankers, investment brokers, insurers, and tax planners operate under the common title of financial advisor or planner.

Financial advisors are no longer reserved for the well-heeled. Today their services can be of use to most middle-income South Africans but the question is, how does one find a good one? All banks and insurance companies employ financial advisors, so this may be a good starting point. These advisors will, in all likelihood, only represent the products on offer for the company they work for. If you want to evaluate a broader range of products; an independent brokerage that represents all of the financial institutions, is the way to go.

You can contact the Financial Planning Institute (FPI) for a list of certified financial advisors in your area. However, there are horses for courses, some will only consult with you if you buy Champaign by the pallet. Before you make an appointment, ask them if they have a threshold that they work within. The FPI (www.fpi.co.za) is an international organisation and only qualified advisers have membership. The Financial Services Board also has a list of accredited financial advisors (www.fsb.co.za) You can also ask your network of friends and family, sometimes a personal referral is all you need.

A good choice of financial advisor is not just about their qualifications, you must be comfortable with the relationship as a whole. You need to be able to call them with questions without feeling like you are imposing on them; in turn they must be willing to return calls and give you guidance. This will be a long term relationship, so you need to ensure that their attitude, ‘bed side manner’ and general demeanour fits within your comfort zone.

Here are some key questions you need to get answered before you commit to the relationship.

 

  • Ask about their professional background. Look for a strong track record or education and job experience covering most of the bases of financial planning.
  • Ask how long they have been a financial planner? A good rule of thumb is five or more years in the investment and insurance field, or at least look for someone who reports to a more senior advisor who checks all recommendations.
  • Ask them how they will make money on your plan. If there’s a heavy reliance on commission income, keep that in mind when they recommend that you buy specific investment products.
  • You should receive a clearly written, individualised financial plan, it should detail the steps you have agreed to take and the reasoning behind the advice. In addition he or she should have asked you about your debt commitments, and about any future financial commitments like education costs, or perhaps having to take care of ageing parents. This process is called a financial needs analysis (FNA). If an advisor does not go through this process, start looking for another professional.
  • Your planner should discuss and document the amount of risk you are willing to assume in order to achieve your goals.
  • They should also make specific suggestions for improving your cash management.
  • As always, knowledge is power, so the more you know about money management and investing the more you will be empowered to assess the quality of your advisor.
  • If your advisor offers you a product that does not fall within the ambit the usual financial services they offer, be extremely cautious. For example if he or she asks you to invest in a property development or unlisted shares. These types of investments have the tendency to go belly up. Stay well away no matter how good they sound.

A financial advisor can partner with you on your way to building wealth but make sure you nurture the relationship. Hold up your end of the bargain and keep in regular contact with him or her and monitor the progress of your investments. You should be in touch at least once a year and more often, if your circumstances change. For example, events like the birth of a child, a marriage, divorce, death, a job change or retrenchment can all impact your financial needs.

If you have taken the time and effort to seek out the help of a financial advisor and would like to check on their credentials; you can contact the Financial Services Board to ensure than they are registered. You would need their name and FSP licence number (they have to have this in order to practice).

If you feel you are savvy enough to go it alone you can also go this route. However, while risk products like life, disability, medical aids and short term insurance are relatively straight forward and can be bought online or through a call centre, creating a solid investment portfolio may need some professional help.

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