My role as a financial advisor – the need for a financial advisor

What is a well-crafted Financial Plan and what should one look for in their financial advisor?

By: Paul Jennings – NFB Financial Services Group

In any service business it is essential to keep asking questions as whether the service is client centric and adding value to its clients.

Research suggest that clients assess value at two levels broadly described as technical service quality (delivering service in the right way) and functional service quality (delivering service nicely). International customer satisfaction data has found that both technical and functional service quality positively affect customer satisfaction but technical service quality has a greater impact in driving customer satisfaction.

It is far too easy for the financial advisor to fall into the trap of assuming their relationship with their clients are sound and sufficient to maintain and grow the business.

With this in mind how do I perceive my role?

I prefer to think of the role more as a ‘financial coach’ with an essential ability to listen and ask relevant questions. Questions which go beyond the mere achievement of certain expressed financial goals. Achieving financial goals are merely a means to an end but does the client have clarity in expressing what these ends could look like. For example, in my view, the retirement industry has done its clients a great disservice in painting a picture of a retiree reaching 60 or 65, hanging up their proverbial working boots and sailing off into the sunset. Suddenly when this enticing date arrives, financial goals have hopefully been achieved and 25 to 30 years of retirement or a third of a lifetime hopefully lie ahead but the retiree is unprepared for this challenge. Much is being written about planning for the second half of life which probably occurs for men who may being going through a mid-life questioning or as is more popularly known as a mid-life crisis. At this time one can take stock of one’s family, financial resources, skills, experience and passion. Once this has been tallied to think about how it could be utilized – this is a process which can take years of thought and evaluation before it can be effectively employed. It is worth the effort and far better than changing partners or buying a sports car.

I like the analogy of the tree and fruit – with the client being the tree who needs to be nurtured and encouraged and the fruit is returns from their labour. It is the role of financial advisor to effectively encourage the tree and steward the fruit to effectively protect and enhance its value.

To effectively achieve these purposes begins with a well-crafted Financial Plan. The Financial Plan should be seen as the blue-print which clearly establishes the goals and objectives and the steps both short and long term to achieve its ends. It is against this document that frequent reviews should be conducted with modification made for any change in circumstances and any tactical enhancements discussed. This is an essential document which has been greatly under-rated by the industry and consequently by clients. One of reasons for this is that in-depth questioning has not occurred and the advice given to clients has, in some instances, been transaction or product driven.

What is a well-crafted Financial Plan?  

  • It clearly articulates the goals and objectives;
  • It establishes the steps to achieve these purposes;
  • It fully comprehends the meaning of risk;
  • It covers the importance and understanding of asset allocation and diversification more broadly;
  • It is measurable;
  • It is holistic in that it covers retirement and investment plans; considers risk cover; is tax effective and
  • Covers estate planning issues, which start with a will.

The benefit of such a plan is that it avoids procrastination, provide peace mind in that the client can see beyond the seaming treadmill of daily life.

What is the on-going purpose of the financial advisor?

  • To encourage that the client to stay with the plan despite the noise and confusion of the moment;
  • To be informed about evolving trends both in markets and legislation;
  • Ensure tax efficiency;
  • Ensure asset allocation is appropriate to the client’s needs and capacity for risk;
  • Researching appropriate solutions to achieve specific goals;    
  • Keeping the plan simple and uncomplicated
  • Keeping communication lines open and
  • Ensuring there is sound succession both of the financial advisor and the client to their extended family.

What should one look for in their financial advisor?

  • Independence – meaning that the advisor is not conflicted by working for a certain institution and being required to sell their products or even a % of their products;
  • Who does the financial advisor work for? What is their history? What are the succession arrangements? What it the experience of the team? etc.
  • What are the qualifications of the financial advisor? Are they a member of the Financial Planning Institute of SA?
  • What is the experience of the financial advisor?
  • An essential element and hard to measure initially it the element of trust – meaning that my interests are being put first;
  • Are the fees charged reasonable and fully transparent. 
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Good article – however I would go further and suggest that an advisor should be a Certified Financial Planner professional (CFP) to ensure you receive expert professional and ethical advice.

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