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10 questions to ask before appointing a financial advisor

Choosing the right person and advisory practice is a fairly important decision.

Ideally, your financial advisor should be someone you partner with for life, which makes choosing the right person and advisory practice a fairly important decision. Here are some key questions you can consider asking a financial advisor before appointing them:

What services do you provide?

Firstly, it is important that you find a planner who can advise you across the full spectrum of financial planning. This will avoid having to find different advisors for various aspects of your portfolio. For instance, if an advisor only provides investment advice, you may need to source a separate financial planner to advise you on your business assurance needs or to assist with your estate planning. Obviously, not every financial planner can be an expert in all areas which is why it is important to establish the in-house expertise of the entire practice. Like law firms, some professional practices employ experts in areas such as tax, estate planning, risk and investments, to name just a few, to ensure that clients have access through a single practice to the full suite of advisory services.

Who owns your business?

Ask about the ownership of the practice, who the shareholders are, how the business is structured, what their staff turn around is like, and what their business succession plan is. If your advisor is not an owner or shareholder in the business, there is a possibility that they could leave for another practice or better prospects at any time. It’s also good to know that your advisor has vested interests in the business and is incentivised to take good care of its clients. If you’re looking for a financial advisor who you can partner with over the long-term, consider someone who is personally invested in the business.

How independent are you?

The independence of your financial advisor is very important because, without complete independence, your advisor may be thwarted in the products and advice they can provide you. If your advisor or your advisor’s practice is limited in terms of the financial solutions they can recommend, you may not be getting the most appropriate or most cost-effective advice. Enquire about your advisor’s independence, the range of contracts they hold with various insurance companies and investment houses, the process involved in making recommendations, and how often they review the products available in the marketplace.

How do you earn your fees?

Your financial advisor should be upfront and fully transparent about how they earn their fees. A remuneration structure favoured by most professional financial planning practices is to charge a flat rate for the preparation of a financial plan plus an ongoing advice fee calculated as a percentage of assets under management on a sliding scale. This structure does away with the inherent conflict of interest found in commission-based structures while at the same time incentivising the advisor to dispense appropriate advice that will stand the client in good stead over the long-term. Further, most fee-based practices avoid charging hourly rates as they do not wish to discourage clients from contacting them for advice.

Are you registered and in good standing with the FSCA?

A reputable financial planning practice should be registered with the Financial Services Conduct Authority (FSCA), have an FSP number, and should be in good standing with this regulatory body. Its FSCA certificate should be displayed at the reception, and its FSP number should appear on all marketing material.

Do you have a service level agreement in place with your clients?

Once you’ve established how your advisor will be remunerated, talk to them about their service level commitments so that you have clear expectations of their services. In particular, discuss how often your financial plan will be reviewed, the extent of the administrative support you will receive, how regularly you will be in contact with each other, their availability should you need guidance and advice on an ad hoc basis, query turnaround times, and their client communication strategy, among other things.

Do you outsource any of your functions?

It’s important to establish if the practice outsources any of its functions as this can sometimes impact on service levels and/or turn around times. Some practices outsource administration and para-planning functions to external companies which can result in a less personal experience for the customer. There are practices that outsource fiduciary services to professional firms which specialise in estate planning, so be sure to ask specifically about this.

How (and how often) do you report back to your clients?

Talk to your advisor about what type of reporting you can expect to receive from them and how often you will receive these reports. Determine whether you will have regular reviews of your financial plan, and if so, how often. If necessary, request examples of the type of reports you can expect to receive to ensure that they meet your expectations. 

What are your qualifications and experience?

As a minimum, your financial advisor should hold the Certified Financial Planner® designation. Be sure to ask your financial advisor about what other qualifications or designations they hold and what experience they bring to the table. Many professional advisors hold commerce or law degrees together with their CFP® or CFA designations. Be sure that your financial advisor is adequately qualified and experienced to provide you with the advice you are looking for.

Are you a member of the Financial Planning Institute?

If your advisor holds the CFP® designation, they will be registered with the Financial Planning Institute of Southern Africa (FPI). The FPI is a South African qualifications authority and is the recognised professional body for financial planners in this country. Being the only institution to offer the CFP® certification, the FPI ensures that its members keep up-to-date through continuous professional development.

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