Having been involved in a wealth management business for the last 16 years, I contribute content to a few publications and platforms. In addition to writing some articles and thought pieces, I’m also a regular reader of wealth management-related articles and thought pieces. I read a couple of articles most days and try to read the comments that follow. Over 40% of the time, one could safely rename the comments section to something like ‘Financial advisors abuse-hurling zone’.
If you’re interested in what the balance of comments are, you could classify three of the remaining ten comments as ‘Active management hate area’ with the remainder being ‘South Africa is going to the dogs.’ While I am being a little facetious, there is some truth.
My sense is that there are two dominant hurdles that prevent people (read as individuals, trusts and companies) from employing an advisor. The first hurdle is the advice fee: is it worth the money? The second barrier is “Can I trust this person to give me decent advice that’s in my and my family’s best interest?” I guess there could be a third thought: “I can do this better myself”.
However, unless financial markets, ‘financial’ legislation, ‘financial’ tax (personal, company, trust, estate, retirement, donation etc.) and financial planning are your profession or committed hobby, you may be better off consulting an expert, than risk making an unintended error. We have a saying in our office: an expert is someone who knows what they don’t know.
What do you get for your money?
Before deciding on a whether to use a financial advisor, whether to go active vs passive, and whether to invest in a savings product or retirement product, the most important decision is to save and not spend your savings. Once you’ve passed this point, be it aged 20 or 60, you need to decide if you are going to partner with an advisor. Yes, wealth managers do charge fees (which should be transparent upfront) but what could you get in return?
- If you structure your retirement and estate correctly you could save a vast amount in income tax, capital gains tax (as an example insufficient liquidity could result in a forced asset sale with associated CGT) and estate duty. Is this knowledge worth paying for?
- You can have someone who will not judge your family dynamics, but rather work with you to structure your affairs the way you want it. I have hundreds of client meetings and can draw from the experience of both my clients and my colleagues. Is this knowledge worth paying for?
- Our business employs risk specialists who can do a full financial needs analysis and an estate liquidity exercise to determine what the correct levels of cover (life cover, income protection, critical illness etc.) are, along with the appropriate premium pattern. It’s not an easy task if you’re not intimately familiar with the product and, as an individual, it would be tricky figuring out who offers better severe illness cover and whose income protection is the best. Is this knowledge worth paying for?
- I cannot speak for others – but our business knows and understands the costs across the major investment platforms both locally and internationally. With this knowledge we can minimise/optimise platform fees for new and existing investments, often offsetting a big chunk of our cost. Furthermore, we have a dedicated team assessing unit trusts and recommending the best funds and unit classes (unit classes determine costs). I can recall a time before effective annual cost disclosure when we were deciding between two S&P 500 exchange-traded funds (ETFs) offered by the same parent company, although under two different brands. It turned out the fund with the higher management cost was the cheaper fund. Just choosing the correct unit class can also wipe out a big portion of the advisor fee. Is this knowledge worth paying for?
- Let’s use the same S&P 500 ETF mentioned above. Do you know that if you hold an S&P 500 tracker fund with a US issuer you could be subject to Situs? That means you may pay estate duty of 40% instead 20% to 25%. Is this knowledge worth paying for?
- Using the same example – do you know that if you hold an S&P 500 tracker fund with an offshore jurisdiction, your estate may encounter probate (winding up your estate) complications (time and costs)? Is this knowledge worth paying for?
- Sadly, the news is abundant with investment scams offering investment return. Most financial advisors should have a due diligence process in place and know some of the things to look out for that could save your money, including whether there is/are:
- A custodian
- A regulatory body and
- Track record
Is this knowledge worth paying for?
I’ve tried to outline a few of many areas where our profession can add value. While I’ve spoken from our business’s perspective, I would think the same applies to any decent advisory practice. If only a handful of value-adds apply to you, the peace of mind and cost savings will materially outweigh the advisor cost.
The second area of possible concern I mentioned earlier was trust. While trust is most certainly earned, there are a few upfront checks you could do:
- Do a Google search with the name of the individual and the business you want to engage with and look out for any adverse material.
- Phone the FPI and the FSCA and check that the person/business is correctly licensed and licensed in the areas with which you need assistance.
- Go to the provider’s website and try to get a sense of what they do and how legitimate the operation is.
- Ask friends and family for references.
- When you meet with the advisor, check their credentials and ask for things like details of their fidelity and cyber insurance.
- Within the first ten minutes of a proposal presentation you will gauge if you are getting a product push or advice.
Your experience and end-result cannot be left entirely up to your financial advisor. I urge you to have a vested interest in your portfolio. The internet (aka Dr Google) is full of useful information and will point you in the right direction at any point along your financial journey.
I go to bed every night knowing that my colleagues and I act with integrity and professionalism when dealing with our clients. Just as not all lawyers are created equal, the same goes for financial advisors. In the same vein – just as you get specialist doctors, you get advisors with niche specialties. You need to find someone who can address your needs and with whom you can relate. Your future is in your hands, but you don’t have to carry it alone. That’s what we’re here for.