By Dr Eugene Brink

Finances are one of the thorniest and most touchy subjects in most people’s lives. And with good reason: It literally determines how we can look after ourselves and our families.

Therefore, when we seek advice from financial advisors, it is crucial to ask the right questions and draw firm conclusions. “Whether you’re just starting your career, nearing retirement or somewhere in between, a financial advisor can help you navigate important decisions about your money. Financial advisors come with an array of backgrounds, so it’s important to know how to choose the right advisor for you,” says personal finance writer Cynthia Measom.

This sentiment is echoed by Devon Card from Crue Invest (Pty) Ltd. “Ideally, your financial advisor should be someone you partner with for life, which makes choosing the right person and advisory practice a fairly important decision.”

Here are some of the steps to follow and questions to ask when you embark on this very important quest.

1. Do your research

This cannot be emphasised enough. “There are different types of financial advisors (i.e. traditional financial advisors, online financial advisors and roboadvisors) who offer different services. Additionally, different traditional financial advisors may have different certifications and registrations,” says Stephanie Horan, data journalist at SmartAsset and a Certified Educator of Personal Finance (CEPF®) in the USA.

In other words, shop around and compare as you would with other products and services. Card has some advice in this regard to simplify the process. “Firstly, it is important that you find a planner who can advise you across the full spectrum of financial planning. This will avoid having to find different advisors for various aspects of your portfolio. For instance, if an advisor only provides investment advice, you may need to source a separate financial planner to advise you on your business assurance needs or to assist with your estate planning.

“Obviously, not every financial planner can be an expert in all areas, which is why it is important to establish the in-house expertise of the entire practice. Like law firms, some professional practices employ experts in areas such as tax, estate planning, risk and investments, to name just a few, to ensure that clients have access through a single practice to the full suite of advisory services.”

2. What are your qualifications, experience and certifications?

“A reputable financial planning practice should be registered with the Financial Services Conduct Authority (FSCA), have an FSP number, and should be in good standing with this regulatory body. Its FSCA certificate should be displayed at the reception, and its FSP number should appear on all marketing material,” says Card.

“As a minimum, your financial advisor should hold the Certified Financial Planner® designation. Be sure to ask your financial advisor about what other qualifications or designations they hold and what experience they bring to the table. Many professional advisors hold commerce or law degrees together with their CFP® or CFA designations.”

He says that if your advisor holds the CFP® designation, they will be registered with the Financial Planning Institute of Southern Africa (FPI). “The FPI is a South African qualifications authority and is the recognised professional body for financial planners in this country. Being the only institution to offer the CFP® certification, the FPI ensures that its members keep up to date through continuous professional development.”

Ask for testimonials from current and previous clients (or read up about them on the advisor’s website if they are available there and the type of clients the advisor has serviced).

3. How and how often will you communicate with me?

Measom says communication is vital to any successful relationship. “You want someone who attends to your needs and answers your questions. Find out how often your financial advisor plans to be in touch with you and how you can reach him or her as needed.”

Card recommends talking to your advisor about what type of reporting you can expect to receive from them and how often you will receive these reports. “Determine whether you will have regular reviews of your financial plan and, if so, how often. If necessary, request examples of the type of reports you can expect to receive to ensure that they meet your expectations.”

4. How much will it cost?

This is an essential question – especially depending on what you would like to do. Card says a financial advisor should be upfront and fully transparent about how they earn their fees. “A remuneration structure favoured by most professional financial planning practices is to charge a flat rate for the preparation of a financial plan plus an ongoing advice fee calculated as a percentage of assets under management on a sliding scale.

“This structure does away with the inherent conflict of interest found in commission-based structures while at the same time incentivising the advisor to dispense appropriate advice that will stand the client in good stead over the long-term. Further, most fee-based practices avoid charging hourly rates as they do not wish to discourage clients from contacting them for advice.”

Sources

Cynthia Measom, 2021, “10 Questions To Ask a Financial Advisor”, https://www.gobankingrates.com/money/financial-planning/questions-to-ask-a-financial-advisor/.

Devon Card, 2020, “10 questions to ask before appointing a financial advisor”, https://www.moneyweb.co.za/financial-advisor-views/10-questions-to-ask-before-appointing-a-financial-advisor/.

Stephanie Horan, 2021, “How COVID-19 Has Changed Financial Advisor and Client Communications – 2021 Study”, https://smartasset.com/financial-advisor/financial-advisor-and-client-communications-covid19-2021.