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How can I be sure my investments will be safe when choosing a new advisory firm?

Will professional indemnity insurance cover a client’s funds, and against what?

Please can you advise how one can be assured that one’s investments will be safe when choosing a new investment advisory company? Will professional indemnity insurance cover a client’s funds and against what? What would happen if the advisory company went under or went off with its clients’ funds?

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Investing your hard-earned savings through an advisory company can be daunting, but understanding your recourse and doing research about financial services providers (FSPs) can ease that financial anxiety. If you want to make sure that your investments are duly taken care of, here are some questions to ask the financial advisor that you wish to engage with.

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. It will be better to have one financial planner that you can build a professional relationship with and understands your needs to help you achieve your financial goals.

Who owns your business?

Ask about the ownership of the practice, who are the shareholders, how is the business structured, what is their staff turnover is like, and what their business succession plan is? This is very important to know from the beginning because you want an advisor who is just as invested in their company as they are with you, continuity and strong bonds produce great outcomes.

Important disclosures should be provided by the financial advisor.

Upon engaging with the advisor, they are required to provide you with a letter of introduction that provides important information about the business, the licensed categories they are registered for, relationships with product providers as well as the experience and qualifications of the advisor that you are dealing with. Within this document, any conflicts of interest will be disclosed, and the complaints procedure will be detailed.

How do you earn your fees?

Your financial advisor should be upfront and fully transparent about how they earn their fees. Clarity on how a FSP structures their fees is important to understand that the services you are paying for are in line with the fees being charged. This could also highlight if the advisor’s remuneration structure will entice them to act in their own interest rather than yours.

Are you registered and in good standing with the FSCA?

A reputable financial planning practice should be registered with the Financial Sector Conduct Authority (FSCA), have an FSP number, and have a good relationship with this regulatory body. All FSPs must present their FSP numbers on all their marketing material.

What are your qualifications and experience?

Be sure to ask your financial advisor about what qualifications or designations they hold and how their experience can help you in your specific financial needs. For example, if your financial advisor holds the Certified Financial Planner® designation, this would mean that they are registered with the Financial Planning Institute and subscribe to their code of conduct. 

Professional indemnity cover is for professional companies (ranging from financial service providers, accounting, engineering, medical and so on) that need protection against financial burdens stemming from a legal liability to a client. The legal liability must be the result of the actions of the company’s employees when rendering the service to the client.

For example, a FSP will offer their services to a client and can be held accountable by law if inappropriate advice was given and if the proper procedures have not been followed which result in a financial loss to the client. It is advisable that certain business have professional indemnity cover in place to ensure they can meet any claims that arise. Therefore, the intention of professional indemnity cover is to assist the professional service provider with the means to settle claims. The investor cannot claim directly from the financial advisor’s professional indemnity provider.

Should you need to lodge a complaint against a FSP, the client would be required to first approach the provider to resolve the complaint. Professional service providers are required to have a complaints procedure in place to assist clients in resolving complaints timeously. Once a complaint has been sent to the financial service provider, if the client is not satisfied with the outcome of the complaint, the client will be able to approach the FAIS (Financial Advisory and Intermediary Services) Ombudsman who can assist further.

Do you have any questions you would like answered by registered financial planners?



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