How to choose a financial adviser
Do extensive research before you decide on an agent who’ll deal with your savings
NEED help with your money matters but not sure how to choose an adviser? Here’s how to go about it. Firstly, make sure they’re legit. There are definitely benefits to having a financial adviser – someone who makes sure you achieve your savings goals and build wealth. On the other hand, some people have bad experiences with advisers who – after selling them a product and going on to earn a tidy commission without having to do any more work – are never seen again. But the days of unreliable advisers are numbered.
The Financial Sector Conduct Authority (FSCA) is working on the retail distribution review, which will strictly regulate the training, licensing and payment of all people who give financial advice, says Etienne Gouws, head of Momentum Intermediary Solutions.
1 CHECK THEIR QUALIFICATIONS AND LICENCE
Advisers are licensed by the FSCA according to their qualifications and experience, and there are different licences for different types of financial services.
For instance, certain people are licensed to sell only life insurance and funeral policies, while others are also licensed to manage clients’ investments on their behalf.
You’re entitled to ask the adviser what their qualifications are and what they’re licensed for. Then, using the adviser’s licence or ID number or the brokerage firm’s name, you can check this information on the FSCA’s website (fsca.co.za). If the person isn’t listed, consider it a red flag.
Another of the FSCA’s requirements is that advisers receive ongoing training to stay up to date with developments in the financial industry. The FSCA verifies these qualifications regularly.
2 GO FOR SOMEONE WITH A GOOD TRACK RECORD
References are important, Gouws says. Ask friends or colleagues to recommend someone and ask your prospective adviser if you can call their other clients to ask about their experience too.
Find out from the Financial Planning Institute of Southern Africa (www.fpi.co.za) or the Financial Intermediaries Association of Southern Africa (fia.org. za) which financial advisers practise in your area. Both organisations closely monitor members’ professional conduct.
The FSCA also lists advisers whose licences have been suspended or revoked.
3 KNOW THE DIFFERENCE
The FSCA distinguishes between agents and independent advisers.
An agent represents a specific company and can sell only that company’s products and services. Agents can be tied to more than one company but just because they offer different products and services it doesn’t mean they’re independent.
It doesn’t mean their advice is of a lesser quality but their offering is limited.
Independent advisers don’t act on behalf of specific companies.
They’re supposed to offer you a range of products, quotations and interest rates from a variety of companies to help you find the financial solution that suits you best.
4 UNDERSTAND HOW YOU’LL BE PAYING
There are two basic payment structures for advisers: commission earned on investment and insurance products or a consultation fee.
A process in the retail distribution review (RDR) is being developed to strictly regulate payments, which means the current payment structure could change although there’s no set date for this yet.
The RDR requires from agents and advisers that:
There must be a correlation between services rendered and the amount charged. Repetitive fees (such as commission) can be earned only if the agent or adviser is still rendering a service.
In other words, someone can’t sell you a product such as life insurance and then continue to earn commission on it even if you never see the adviser again.
All fees need to be stipulated clearly in rands and cents before you sign any documents. 〉COMMISSION The amount depends on the type of product, but you have the right to negotiate the commission, Gouws says.
You can also terminate the agent’s or adviser’s service if in the future if you aren’t satisfied with the services. You’ll then need to notify all financial institutions where you have investments, as well as those your (now former) adviser/ agent has ties with, in writing that you’ve ended the mandate. 〉CONSULTATION FEES These depend on the type of work an adviser does for you and the amount of time they spend with you.
For example, a YOU reader consulted an adviser about his retirement investments.
The adviser analysed the reader’s existing investments then spent about an hour explaining changes he proposed to investments that weren’t growing.
This one-off informative session cost about R900.