DUM­MIES’ GUIDE TO THE FI­NAN­CIAL AD­VICE MAR­KET

Weekend Argus (Saturday Edition) - - GOODPUZZLES -

For ex­am­ple, the Allan Gray in­vest­ment plat­form en­ables you to in­vest not only in Allan Gray funds but also in funds from 15 other com­pa­nies.

When it comes to ad­vis­ers, the typ­i­cal mod­els are:

◆ Tied agents, who work for a par­tic­u­lar fi­nan­cial ser­vices com­pany and sell its poli­cies or in­vest­ments. For ex­am­ple, Lib­erty, San­lam or Old Mu­tual agents will rec­om­mend the poli­cies or in­vest­ment plat­forms of their re­spec­tive com­pa­nies. Th­ese agents are of­ten in­cen­tivised to meet tar­gets de­fined as the num­ber of poli­cies they sell, or the amount of money (as­sets un­der man­age­ment) that they place on an in­vest­ment plat­form.

Some tied agents work in “fran­chises”, which means they op­er­ate their own ad­vi­sory prac­tices as a sep­a­rate le­gal en­ti­ties. But they are reg­is­tered un­der the fi­nan­cial ser­vices provider li­cence of a larger fi­nan­cial com­pany, typ­i­cally a life as­surer.

◆ In­de­pen­dent ad­vis­ers who of­fer their own funds. Some in­de­pen­dent fi­nan­cial ad­vis­ers, who are reg­is­tered on their own fi­nan­cial ser­vices provider li­cence, of­fer their own unit trust funds of funds. Th­ese funds are also known as bro­ker funds and they op­er­ate un­der the col­lec­tive in­vest­ment scheme li­cence of a unit trust fund com­pany.

The ad­vis­ers typ­i­cally set up three to five funds, to which they match your in­vest­ment needs and risk tol­er­ance. The funds are typ­i­cally multi-as­set funds that in­vest in other, bet­ter-known unit trust funds in dif­fer­ent pro­por­tions, de­pend­ing on whether the fund is conservative or more ag­gres­sive.

Th­ese ad­vis­ers can earn an ad­vice fee, as well as an in­vest­ment or as­set man­age­ment fee from the fund of funds. In ad­di­tion, you will pay the fees on the un­der­ly­ing unit trust funds. As a re­sult, the fees on bro­ker funds can be very high.

◆ In­de­pen­dent ad­vis­ers who rec­om­mend one in­vest­ment plat­form. Some in­de­pen­dent ad­vis­ers, typ­i­cally the smaller ones, have their own busi­nesses and can of­fer you life and dis­abil­ity cover from a host of fi­nan­cial ser­vices com­pa­nies, but they will choose only one in­vest­ment plat­form with a range of un­der­ly­ing funds and ad­vise you to place your in­vest­ments on that plat­form only.

◆ In­de­pen­dent who can rec­om­mend a num­ber of plat­forms. Larger in­de­pen­dent fi­nan­cial ad­vi­sory firms will choose a few in­vest­ment plat­forms to of­fer to their clients, and they will rec­om­mend the plat­form that suits a client’s needs.

The Fi­nan­cial Plan­ning In­sti­tute’s David Kop says that, typ­i­cally, ad­vis­ers who rec­om­mend a num­ber of in­vest­ment plat­forms will not of­fer you ac­cess to more than three or four of them, be­cause a plat­form re­duces the fees on the in­di­vid­ual unit trust funds if the ad­viser places a large amount of his or her clients’ money on that plat­form.

Fund­house’s Rob Mac­Don­ald says an ad­viser who has done a due dili­gence and cho­sen to of­fer a sin­gle in­vest­ment plat­form may be more in­de­pen­dent than one who has a con­tract to place a cer­tain per­cent­age of busi­ness on a par­tic­u­lar plat­form.

Kop says be­fore you en­gage a fi­nan­cial ad­viser you should ask him or her to ex­plain the due dili­gence he or she per­formed on the in­vest­ment pol­icy or plat­form and why he or she is rec­om­mend­ing it.

Some ad­vi­sory prac­tices sit within

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