Generally speaking, when you make a financial decision the outcome is only realised some time in the future.
Your advice should not be taken in isolation and as a once off decision. You need to keep in touch with the advice given by reviewing frequently to ensure it is keeping track with your expectations.
At the outset you need a good relationship with your financial advisor. This relationship, like any other, should be based on transparency and trust.
So it stands to reason that you should get to know your financial advisor as much as possible before taking his advice.
Here are some questions you should have answered.
Who do you work for ?
If your advisor is an independent he does not work for anyone but himself. If your advisor is an agent he works for a company.
Independents answer to themselves. They work for their reasons and are not accountable to any company. They have their own business objectives and expenses for that matter which translates into the
fees they charge for the advice provided.
Agents/broker representatives are accountable to the companies they work for. Therefore, they work towards targets and objectives set by these entities.
Independent advisors need a succession plan to assure their clients will be looked after if the advisor moves on. This places the client in a vulnerable position if there advisor is not there to review the performance of the financial plan into the future.
Agents have the backing of the company they work. The entity will be in a position to provide continuity by assigning a new representative to the plan.
When dealing with either an independent or a representative trust and transparency will always be the order of the day. It boils down to liking your advisor in the light of believing that he has your interests at heart.
What license do you have?
Advisors need to be licensed to provide certain levels of advice.
The licenses are controlled by the FSB and they need to be maintained by the advisor through some stringent compliance which includes continuous development on the part of the advisor to keep up to date with the ever changing industry.
FSB regulatory exams are compulsory for all advisors and they cannot do business without having completed them.
The advisor should in every instance provide objective advice which suites your situation and lifestyle needs.
He should conduct a comprehensive financial needs analysis before making any recommendations. A need is the difference between what you have and what you want. So how can anyone know what you need without establishing what you have. A financial needs analysis is a discovery process which comprehensively looks at what you have in relation to what you need. Only then can an appropriate recommendation be given. Sound advice?
What’s in it for you?
How do you get paid?
Commissions and fees. What do you actually pay for? Understand this in rand terms and not only percentages which look very different on paper.
1.5% of a R1 000 000 with an annual fee of 0.5% on the value of the fund means that the advisor gets R15 000 upfront which comes off the initial investment and around R5000 plus, depending on the value of your investment, per annum, which also comes off your investment. A 1% per annum fee translates into R10 000 plus per annum which is a bigger slice out of your investment every year and on e would expect more justification over this charge. So its important to discuss what the advisor does for you to justify his fees.