Three Minute Money Matters #2

The financial planning process and what to look out for when choosing an advisor

The Financial Planning process

1. Establish and define the relationship
   The Financial Planning advisor informs the client about the financial planning process, the services they offer and his own experience and competencies. The Financial advisor then describes, in writing, the scope of the engagement before any financial planning is provided.
   The following details should be included: the responsibility of each party (including third parties) and the terms of the engagement and compensation. The scope of the engagement is set out in a formal document and signed by both parties.
2. Collect information
   The Financial advisor, together with the client, identifies the client’s personal and financial objectives, priorities and needs that are relevant to the scope of the engagement before making or implementing any recommendations. The Financial advisor collects sufficient information and documents from the client.
3. Analyse and Assesses Financial status
   The Financial advisor then analyses the information provided, subject to the scope of the agreement, to gain insight into the client’s financial situation. He then assesses the strengths and weaknesses of the client’s current financial situation and compares them to the client’s objectives, priorities and needs.
4. Develop a comprehensive plan
   The Financial advisor considers one or more strategies relevant to the client’s current situation that could soundly meet the client’s objectives, needs and priorities. The then develops recommendations based on these objectives, needs and priorities. This recommendation is then presented to the client in a way that allows the client to make an informed decision.
5. Implement plan
   The client and Financial advisor then agree on implementation responsibilities that are consistent with the scope of the agreement, the client’s acceptance of the financial planning recommendations and the advisor’s ability to implement these recommendations. The Financial advisor identifies and presents appropriate products and services that are consistent with the financial planning recommendations as accepted by the client.
6. Review
   The client and Financial advisor then agree on terms for re-evaluation and review of the client’s situation, including risk profile, goals and other relevant changes. This is done in order to assess progress towards the achievement of objectives, determine if the recommendations are still appropriate and confirm any revisions mutually considered necessary.

What to look out for when choosing an advisor

One of the most important financial planning decisions that you will ever make has nothing to do with choosing products or portfolios, but with choosing the right team of Financial Advisors.

Here are five things to consider:

• Experience and education:
  A good starting point could be an advisor’s website. Here you will learn about their qualifications, experience and planning practices. You will also gain insight as to why that particular person may be uniquely positioned to help you with your financial planning.
• Working relationship:
  Be sure that you understand how often and with whom you will be working. Some advisors will check in with you once a year after the initial upfront meeting while others provide ongoing support throughout to help you implement your plan and coordinate with other service providers such as mortgage brokers, insurance agents and accountants.
• A wide spectrum of advice:
  As you go through the various stages of your life, you will need advice on various elements of financial planning including short-term insurance, investment products, wills, risk cover and medical aid cover. You have to ensure that your advisor can provide a holistic solution by providing all these services or at least outsource it to qualified professionals.
• Independence:
  Being independent allows your financial advisor to find the best solution for your needs. Independent Financial advisors are not incentivised to advise on specific products or product providers. They are not restricted to marketing the products of a single company, thereby complying with legislation to curb conflict of interest.
• Niche market experience:
  Niche market: a small subgroup of people sharing certain characteristics and having specific wants, needs and preferences. Serving a niche market allows for enhanced client relationships.

Disclaimer:
This is not to be used as financial advice, and always consult with your financial advisor before making any decision regarding pension fund withdrawals or transfers. These tax implications are subject to change.