Using a financial adviser or planner: red flags to watch out for

WHETHER you are a new or seasoned investor, you may choose to get some support in your corner to make your investments more efficient and profitable. Perhaps you need someone with more knowledge about the markets, or you simply don’t have time on your hands to manage your portfolio. This is when you can consider getting a financial planner who will be able to fulfil your investment needs.

A qualified, experienced, and registered financial planner who promises to serve your best interests will give you an excellent financial plan while increasing your portfolio’s performance, so that their fees don’t eat up your returns. Yes, there is always a cost to seeking professional support. This cost can represent a combination of fees called transaction costs, and these make a difference in your portfolio performance.

An adviser who can plan for you with the least fees is already a winner in my eyes.

If you can get a financial planner who fully prioritises you, creates a plan that adequately speaks to your financial needs, a plan that is goal-orientated and is always on the pulse with market trends, then you can rest assured that you are in good hands.

The financial planner-client relationship is a two-way street.

The moment it feels like you are being lectured on financial austerity, being oversold on specific financial products and services, then that’s a sure red flag to run for the woods.

However, it is also important to remember your responsibility as the client; that is, to have the financial literacy and education to have the three Cs when engaging with your planner. They are confidence to question, the capability to identify your needs and goals, and comfort to know that you are making the right decisions for your financial future.

Financial planning in South Africa is well regulated, and no one can simply give financial advice.

According to the Financial Advisory and Intermediary Services Act, financial advice is:

“Any recommendation, guidance or proposal of a financial nature furnished by any means or medium to a client in respect of purchasing any financial product, incurring of any liability or the variation of any term or condition applying to a financial product, on the replacement of any such product, or on the termination of any purchase of any such product.” (Ngele, 2019)

Most financial advisers and planners are not registered to give advice on all financial products and services and may seek third-party assistance from other financial brokers qualified for a different category of financial products.

For example, your adviser may be able to advise on investments, but for your short-term insurance products, they may outsource the function.

But don’t believe everyone who claims to be a good adviser. There are chancers out there. Impostors who cleverly camouflage among us. People who look like friendly neighbours who should always be trusted.

They may talk a sweet deal with you and run away with your money. Always do your research first before committing to an adviser, and know the signs.

Below are some red flags, if the adviser doesn’t:

Tell you about the risk. Most investments carry some amount of risk. The adviser needs to show you that returns move with the market.

Prove that they are registered. Many investment scams are run by unregistered agents selling “private offerings”. The same goes for securities, real estate, forex trading, such as stocks, bonds and hedge funds. These products should also be registered.

Have a strategy mapped out according to a needs analysis matched to your individual circumstances and life goals. The adviser should be able to clearly explain the plan with the risks, benefits and expected results.

Have the correct documentation: proving registration, account statements, documentation of products offered on their side, and documents detailing a record of the advice they have provided.

Don’t let this put you off – there are fantastic financial advisers and planners who act in the best interests of their clients.

They are real people who understand the pressures and limitations in which most of us have to manage our money, and they will do their best to map out a financial plan that suits your capabilities, needs, aspirations and goals.

They want to make sure that your tomorrow is a reflection of the goals you set out.

These are the guys who work under a registered financial services provider (FSP), they make an effort to continuously upskill themselves, they are open and transparent with you – at their core, they manage the risk and performance of your portfolio and, trust me, you will hear from them more than once a year. They exist, I promise.