#3: YOUR FINANCIAL ADVISOR

Before launching into my view of the world that is ‘financial advice’, we would like you to think about the first thing that pops into your mind when you say the words ‘financial adviser’. We can assure you that the picture you are forming is not a flattering one. Most of us will know of someone in the family that lost money on an investment, haven’t seen their adviser for ages, or they just hate those ‘polis smouse’ that phones them all the time. Unfortunately, this is not far from the truth.

History will show that the role of the financial adviser was filled by those focusing on life insurance and chasing commissions. The problem with the industry was that, with minimal knowledge or skills, you could make a substantial amount of money; given that you have the unique capability of being able to sell ice to an Eskimo. All you had to do was get an appointment with someone, spin your story and get that person to believe that he or she needed whatever you had to offer – almost like selling a toaster. Also, because there were minimal regulations on any advice given or products offered, the industry became a magnet for the aptly named ‘polis smous’ (translated: policy hawker). You must also understand that there were financial advisers that really had the client’s best interests at heart, but they were in the minority.

So, we asked ourselves the question: “In the new age of financial advice, with all the legislation and regulation that the industry has to protect the consumer, are there any more of these ‘polis smouse’ left?” Unfortunately, the answer is yes, but it’s not all doom and gloom. There are many institutions and advisers that are avidly preaching the gospel of having the client’s best interests at heart and we feel that the new generation of financial advisers could revolutionise the industry completely. The question is: how do you differentiate between the financial adviser and the ‘polis smous’? Here are some pointers for the next time you have an appointment with your financial adviser:

1. Ask to see his/her credentials

Any financial adviser should have his/her license, contact details and disclosure documents at hand at all times. This proves that the person you are dealing with is not one of those fly-by-night advisers that will run off with your money after the first meeting. Most financial advisers are proud of their achievements and competencies and would probably start off the meeting with an explanation of their abilities and a brief introduction to their history. It might contain a bit of bragging, but we would consider that as a good sign.

2. Ask questions

To the financial adviser, knowledge is power. The more questions you ask, the better you will understand what you are getting yourself into and how knowledgeable your adviser really is. Most people feel that asking questions show that they are uninformed and therefore they don’t want to sound ‘stupid’. This is far from the truth and any financial adviser worth his/her salt would relish the opportunity to explain to you exactly how everything works.

3. Ask about the fees

Any financial advisor should be able to discuss their fees with you without feeling uneasy about it – and don’t entertain the idea of “don’t worry, the company is paying my commission, it’s not you that’s paying for it.” In any product, it is eventually the client that pays the adviser’s commission or fees. Be sure about what you are paying and what you are getting in return. We are personally not fond of investment products that pay a big commission initially and only when recurring investments increases, but they do have merit in some cases. Just make sure that you know what the full commission is that the adviser gets paid in Rand terms.

4. Be very careful of products that sound too good to be true

We have found quite a few instances where growth in excess of 19% per annum was ‘guaranteed’ to the client. The best rate that we have seen over the last three years that could be considered ‘guaranteed’ was 9,3%. Be sure to ask what the risks are of the specific investment and what you could expect in a worst case scenario.

5. Ask how often you could expect feedback from your advisor

By law, any adviser is obligated to give feedback and review every client at least once per year. This does not mean that the adviser has to see the client personally, but most advisers would want to do business in that manner. If you require the adviser to give feedback more regularly, be sure to bring it to his/her attention so that the extent of the service relationship is defined from the outset.

To conclude, our idea of what a financial adviser should be, is a person that looks at your risks, your needs and your dreams and tries his/her best to plan for it and make it a reality. You can therefore not just focus on one or two aspects of your financial situation, but should rather take a holistic approach to your financial planning.

We hope this will help you with finding a financial adviser that will guide you towards your financial goals by giving the best possible advice for your situation.

Happy investing!