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Ask your advisor what they do, not who employs them

Financial Planning Institute responds to a financial advisor’s opinion piece.
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We read with interest the article by Michael Haldane of Global & Local Investment Advisors titled: ‘Financial advisor vs broker: the key differences‘, which raised some interesting points. However, we believe that the article missed the mark in some key areas.

  • We do not believe that the term ‘broker’ has relevance in the professional advice space any more. Over the years financial advice has continued to be professionalised, either through increase regulatory requirements, or by financial advisors voluntarily deciding to pursue professional designations like the CFP® professional or FSA™ designation, and recognition must be given to this.
  • A financial advisor’s job title should not be defined by where they are employed, as employment does not change the essential activities of the financial advisor.
  • The employer would set expectations of their advisors based on their objectives. This could either be the delivery of advice or the sale of products.
  • It is common knowledge that even in the independent advisor market, some firms focus on the sale of a product, not holistic advice. Similarly, some tied agents focus on holistic advice as opposed to selling a product.

Financial advice vs information provided to sell a product

We believe that the real problem is that financial product information often gets positioned as ‘financial advice’. This creates enormous confusion in the marketplace. While the product seller may indeed go through a more detailed process of getting to know the client and understanding the client’s fact situation, the focus for the transaction is the eventual sale of a product.

The ‘advice’ provided to the customer typically tends to be information about one or more products that are intended to result in a product purchase by the buyer.

Financial advisors must be clear in their engagements with consumers on what their advice philosophy is:

  • Do they follow a holistic advice-led approach, where the focus is on understanding you as a client, or
  • Do they follow a product-directed approach where the focus is on finding a suitable product to fill a pre-determined need?

Product-led approach

Financial advice as it is currently defined and largely practised, is typically delivered to address a client’s stated need, and is of limited duration. Usually, the solution involves a product.

Holistic financial planning approach

The financial planning process consists of developing strategies to assist clients in managing their financial affairs to meet life goals, and can involve reviewing all relevant aspects of a client’s situation across a large breadth of financial planning activities (including inter-relationships among often conflicting objectives).

The client-centric process of financial planning may address and focus on the client’s unstated goals or needs, be comprehensive in nature, and may result in the delivery of a financial plan and not necessarily a product sale.

Which one do you need?

When engaging a financial advisor, the first question that should be answered is which approach do you need? Are you looking for:

  • Product information providers, whose primary focus is to sell from among a set of products, who possess information on the pros and cons of the various product lines
  • An advisor whose primary focus is to sell the product of a manufacturer or distributor, who possesses information on their product line, or multiple product lines
  • A financial advisor who meets regulatory and/or professional advice obligations, and focuses on the consumers’ needs and objectives before recommending products,
  • A financial planner who meets professional financial planning obligations, and focuses on the client’s needs and objectives before developing strategies which may or may not result in the delivery of products.

Additional questions 

Once you have determined your high-level need, and you need to engage a financial advisor or financial planner (as opposed to just buying a product). We suggest that you interview two or three advisors to find the right fit and ask the following questions:

  1. What are your qualifications?
  2. Are you a CFP® professional?
  3. Are you a member in good standing of a SAQA-recognised professional body?
  4. How can I verify your professional status?
  5. How many years’ experience do you have giving advice?
  6. Can you explain the services that you offer?
  7. How are you remunerated for your services?
  8. Are you licensed with the Financial Sector Conduct Authority?
  9. What service do you offer with regards to the implementation of solutions and financial products?
  10. After implementation, what ongoing services do you provide?


We believe that the principal reasons a financial intermediary or firm provides a customer with an unsuitable product are due to:

a. A lack of knowledge of one’s own abilities and obligations to the customer;

b. A lack of understanding of the client’s goals, needs and objectives (and to a lesser extent risk tolerance);

c. A lack of knowledge of the product and its potential to impact the customer’s financial situation adversely; or

d. The product seller’s external obligations or motivation for personal gain (resulting in an unsustainable conflict of interest), which compromises the duty of care owed to the customer purchasing the product.

The situations described in (a), (b) and (c) above speak to the practitioner’s professionalism, competence, an understanding of his or her own abilities, obligations to the customer, and an understanding of the customer’s needs and the products being sold.

The situation in (d) speaks to an insufficient duty of care afforded to the customer by those whose personal interests or external obligations conflict with public expectations and the customer’s needs, which can be exacerbated by the absence, or by a limited form, of remuneration or other disclosures.

 If we as a financial services industry and financial planning and advice profession want to (re)build the consumer’s trust we need to be clearer on the services that we offer and not try to disguise the selling of a product as holistic financial advice.

David Kop is director of relevance at the Financial Planning Institute of Southern Africa


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“some tied agents focus on holistic advice as opposed to selling a product”

A tied agent is generally influenced with the advice/solution they provide. The client will thus always receive advice which is linked to the company which employs the tied agent. Sure there are some outliers, but this is the case for the majority of tied agents.

Also, why would an insurance company setup a tied agent advisory division, to only see them provide advise on other solutions… this makes no sense. So they influence the tied agents, either directly through greater commission or revenue share on their own products, or through overseas trips for the most sales.

If you sitting in front of a client and you going to receive greater remuneration for ultimately advising the client use your companies solutions, then your advice is influenced, and this is a NEGATIVE influence.

Humans react to incentives, and you can provide a product approach, goal based approach, holistic planning approach, a “humans under management” approach or whatever other buzz term is in vogue, but if your incentives are not aligned with your clients, then are you truly providing the client with an approach which provides them with the best outcomes?

Stephen Covey wrote more than 30 years ago that you cannot tell people to do A, but incentivise them for doing B and then expect that they will do A. It is a lesson very few managers and business leaders in financial services learnt. Those who did, have clients for life.

The root cause of this confusion is that most “Financial advisors” are incentivize to SELL! Meeting Commission targets is the alpha and omega of their motivation so that all the feeders in the chain of command get their bonuses in the form of holidays to exotic destinations etc. The pressure on “FA’s” by FSP’s is relentless. It is IMPOSSIBLE to avoid this conflict of interest in my opinion although the FAIS Act is clear about this.

”Advertising is 85 % percent confusion and 15 % commission”
Fred Allen (1894-1956)

It’s almost impossible to use a ”product push” strategy when advising pensioners where and how to invest their pensions when they retire. There just aren’t too many choices available – and pushed from ”pillar to post” in the mainstream financial press.

Like any marketing strategy or initiative, push and pull strategies require planning and consideration of the audience and the marketplace – which has been done ad nausea by the financial planners.

Funny how, I think it’s one industry where very little if any M&D has taken place in decades, in sunny SA. Absolutely no tactical monitoring, where products were either reviewed and revised on a regular basis is done or needs to be done.

In essence, no digital analytics are currently employed to enable financial advisers to develop a comprehensive understanding of their audience – allowing them to determine the best possible push and pull strategies to move their customers into.

The so-called 30 % offshore investment – diversifying into the international market methinks has become the ”sweetener” with fund managers that knows zip about exchange rate risk and exchange rate volatility!

I recently came across the Martin Method which I like. Prospective client to financial advisor: “…Send me a copy of your personal income tax returns from the last few years and a list of what you have had in your own portfolio in the last three years.”

If your financial adviser’s salary, bonus or continuing employment, is dependant on reaching an income target…!

Thank you David for giving another perspective. I did not agree with the original article, with respect to the writer.

Whilst there may still be some advisors working solely for own gain, this number is getting smaller by the day.

Similar to any ‘sales’ environment the Assurance companies do offer incentive trips to their top Tied Advisors. This offering cannot be extended to the Independent Advisors Corps as it constitutes a conflict of interest. Please note the word ‘top’ Advisors. These are the individuals who by their own choice work extremely long hours, drive vast distances and mostly go way beyond what’s ‘expected’ to ensure clients get the best possible service. You don’t see them at the coffee machine or in the corridors.

Fees and commissions (that swear word) are regulated- so everyone gets the same income.

To suggest that incentive trips sway Advisors to do better may be true, but as fees are regulated one cannot suggest that incentive trips perse are causing distorted advice. Independent Advisors made a choice to be independent- and good for them. Tied Advisors also made a choice.

Live, and let live.

A key factor that requires full transparency and should be questioned is the independence of the advisor as well as the advisory firm he/she is employed by. Any financial associations that cross over to other product providers such as Trust Companies or Asset Managers require careful thought – as impartiality of advice has to be compromised…

Good article David – look forward to catching up again sometime soon… when international travel resumes once again!

Advisors of all kinds are supposed to be professional. A dentist does not earn more for a filling for a wealthy client. The way I understand fees in the advice game, the fee is very much determined whether placing R1m or R10m? If I needed advice I would pay a professional advisor a fee and I assume his firm would have a review structure that includes the file going past a boss. That is the way most professionals from tax to consulting engineering work. Expensive but it comes with professional liability and in most cases independence.

First question : are you still in South Africa – and if yes – when do you plan to ship out ?

I will believe all of this when the advisor start quoting me an hourly rate and issue me with an invoice for services rendered.

Whether I pay him then upfront, or via unit trust reduction by the Asset Manager is then a payment arrangement. And when that invoice is paid, only future value added services you render AND invoice again will earn you an income. None of this commission for ever for past advice.

When this become the norm I will believe that advisors have your best interest at heart, independent or tied.

Imagine a doctor sending you a Yearly bill even 5 years after your op, ridiculous!

@ daniemare, Interesting comments.

‘Imagine a doctor sending you a Yearly bill even 5 years after your op, ridiculous!’

Whilst this may ‘sound’ ridiculous why do you think people pay:

1. Interest on their Bonds- some 20 years on? – It’s called costs.
2. Interest on car payments – sometimes for up to 72 months?- Again, it’s called costs/interest.
3. Upfront sales ‘commission'(that swear word) when buying a property? Or should the Estate agent just work for free?
4. That same doctor when you go for a post-op ‘check-up’?- Surely he wouldn’t do it for free?

Whilst I agree that there may still be a number of ‘chancers’ out there, the vast majority of Advisors and Brokers run a solid straight forward practice. Add to that the FACT that there are choices and freedom. No one forces any individual to do business with a specific Broker or individual Advisor. And then there’s the Ombud where any individual can lay a complaint. Maybe take some time to study statistics relating to complaints. You may be surprised to note where most complaints are actually registered.

Advisors and Brokers run a Business like any other profession. Businesses have overheads- again like other businesses.

Some medical professionals choose to work for the Government, whilst others work for themselves in their own practices with the associated costs. The same applies to brokers and Advisors. Some are ‘tied’ and some are ‘independent’

I find it fascinating that the Financial Services sector is always under attack, whilst very few ever complain about legal fees – for example. Could it be because the legal fees are paid to keep you safe from legal harm? Advisors and Brokers’s advice and proposed solutions more often than not protect the insured and family from financial disaster.

This may sound crude, but it’s true. No one wants to talk to Financial Advisors- until someone dies.

BenK, I disagree with your analogies.

The doctor’s post op visit is generally included and where it is not, it is another service, so off course you pay again. But, still being healthy from that op after 5 years, you do not still pay year in and year out now do you? They do not try to cover their ongoing cost of their practice by regular billing of old cases. A laywer don’t contact you every year charging you because he helped you out 5 years ago.

Interest on bonds and home loans Are not charged because you borrowed IN THE PAST. It is charged because you borrowed that month, as in the loan is STILL outstanding. Imagine a bank charging you interest on a home loan which you HAD with them.

So maybe you understood me wrong. I did not say “I want for free”. I said bill me for the hours you work for me, not skimping from the pot I invest year in and year out.

My point with advisors is, when the advise is to put your money in Fund A, that advise is worth something and you should pay. But 5 years later, never spoken to the advisor for more than 5 minutes if that, why still pay? What NEW service did he/she render? If there was a new service in the interim, bill me, put it on an invoice and I will pay. Even if it was a 20 minute analysis to say all is still good. But for 20 minutes, not 0.5% of the pot. Trailing commissions just do not make sense. (By the way I have issues with upfront commissions to, estate agents included)

Then you say, well there is many service providers you do not need to use advisors. Not true. From my experience, I tried to change my PPS policies and purchase another Investec Structured product. Both products I am highly familiar with. Both products I already have. But both I could not access but through an advisor. So no, it is important for me to find an advisor that bills per hour otherwise some products cannot be accessed. Luckily I have one, but it took 2 years to find.

So to be clear, charge me R10,000 per hour if you so wish and you think you are worth it. That is your prerogative Snd market forces. But charge me when you work, not when my money just lie there. That will also make all this tied vs independent who is better go away.

End of comments.





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