Engaging the services of a financial planner should not be taken lightly. Ideally, you should be looking to find an advisor for life – someone who is willing to partner with you on your long-term financial journey. To ensure that you receive the best advice and that your expectations are fully met, here are some key questions to ask your would-be financial advisor:
- Are you independent?
An independent advisor is not affiliated in any way with any insurance company, investment firm or product house, nor is he/she incentivised in any way to recommend certain products or investments. An independent advisor is able to recommend a broad range of products, investments and/or funds that meet your specific needs and which are truly in your best interests. Your advisor should be able to demonstrate that they will work independently for you, and that their advice will not be affected by any industry affiliations or associations. When engaging the services of a financial advisor, you should be provided with a disclosure document which lists all service providers that your advisor is contracted with and whose products he/she is able to recommend, together with any conflicts of interest that affect their independent status.
- How are you paid?
Most truly independent financial advisors charge a professional fee for their advice and service, although the structure of this fee may vary from practice to practice. In general, fee-based advisors charge a flat-fee, agreed to upfront, for the preparation of a comprehensive financial plan. Thereafter, the advisor is remunerated as a percentage of assets under advice, with the emphasis being on comprehensive wealth management.
Given human nature, it goes without saying that a fee-based structure is a better environment to cultivate planner-client trust.
Whereas commission-based advisors are faced with an inherent conflict of interest between providing the most appropriate advice and generating commission from a product sale, fee-based advisors are incentivised to grow the client’s investment assets over the long-term.
- What are your qualifications and affiliations with professional bodies?
Firstly, your advisor’s practice must be registered with the Financial Sector Conduct Authority (FSCA) and should reflect their licence number on their website and all official documentation. Ideally, your advisor should be a member of the Financial Planning Institute (FPI) which is the recognised professional association for financial planners in South Africa, and the only institution to offer the certified financial planner® (CFP®) certification. The CFP® designation is the internationally-recognised standard for financial planning professionals, so consider finding an advisor who holds this certification. In addition to the above, many advisors hold commerce and/legal tertiary qualifications in the form of undergraduate degrees, post-graduate degrees or higher diplomas, all of which further qualify them to dispense financial advice.
- What is your experience and speciality?
Some financial planning practices specialise in one specific area of financial planning, for instance retirement planning or estate planning. Depending on your specific needs, be sure to ask your advisor what their area of speciality is. Ideally, find an advisory practice that is able to provide you with the full spectrum of financial advice, as this will eliminate the need to engage with multiple advisors to provide for your various needs. Many medium-to-large financial planning practices employ experts in all financial disciplines to ensure that the full spectrum of client needs can be provided in-house. Ask questions pertaining to their experience, track record, the size of their client base and the assets under advice. It is advisable to employ the services of a company that has a proven track record and a wealth of industry experience.
- What is your investment philosophy?
Asking your advisor about his- and his company’s investment philosophy is one of the most important things you can do. As a future client, it is imperative that you understand your advisor’s views on investment markets, risk, multi-managers and discretionary fund managers, active- versus passive investing, changing investment strategies, timing markets, tax efficiency and growth. Most importantly, your advisor should give you comfort that his/her investment philosophy is aligned with your objectives, and that he/she is able to provide client-driven advice that is in your best interest.
- How will our relationship work?
Quiz your advisor on how your relationship will unfold after the implementation stage and what you should expect going forward. Many clients attest to feeling under-serviced after the initial few meetings and once their portfolio has been set up.
Depending on your needs, your advisor should offer to meet with you on at least a quarterly basis, and perform a full review of your portfolio at least once a year or as and when your circumstances change.
In addition to your reviews, find out how accessible your advisor will be should you require ad hoc advice, opinion and assistance, and how they intend to charge for this.
- Do you have a service level agreement in place?
Once you understand your advisor’s fee structure, determine whether he/she has a service level agreement in place. This document will outline exactly what services and standards they’ve committed to provide you, and can be used by you to hold him/her to account. The document should list the services, turnaround times, value commitments and ethical standards that he/she is committed to delivering.
- How often do you communicate with clients?
To manage expectations going forward, check with your advisor regarding the type and regularity of client communication. Many advisors send out regular client newsletters, industry updates, review reminders, articles of interest and invites to client functions or appreciation events. It is advisable to know exactly what to expect from them going forward, to avoid disappointment or frustration at feeling neglected by your financial planner.