Financial advice is difficult to sample, comes with no guarantees and you may only find out it was unsuitable many years later.
In order to protect you, there are some provisions in law designed to ensure that those who advise you are suitably qualified and give you advice in your best interests.
But there is only so much the law can do. The rest is up to you to ensure you know enough to be able to identify a good adviser and get the best advice.
The Financial Advisory and Intermediary Services (FAIS) Act requires that anyone who gives you advice is registered as a financial services provider or is a representative of a registered financial service provider.
You can check if your adviser is registered as a financial services provider, or if the practice for which they work is registered, on the Financial Sector Conduct Authority (FSCA) website here. When you find the financial planning practice, you can check whether someone is indeed a representative of that practice.
You can also check on the FSCA’s website what kind of licence the adviser or representative has, and therefore what kinds of products the practice, or the representative, can advise you on.
Must be licenced
Advisers must have at least what is known as a category I licence in the relevant sub-category. So an adviser who can give you advice on life assurance, retirement annuities and collective investments must be licensed for the life assurance, retail pension benefits and collective investments sub-categories.
An adviser who recommends and sells you either medical scheme membership or short-term insurance may be licensed in the medical scheme or short-term insurance category only, and should not be selling you property scheme investments or unlisted shares.
An adviser who is also managing your investments, by determining the right asset allocation and finding managers or investing directly in markets and making changes to the portfolio without referring back to you, should have a category II license. Those who manage hedge funds need a category IIA licence.
In order to get a licence as a financial services provider, to be the key individual in a practice to whom representatives report, and even to be a representative for a financial services provider, an adviser needs to meet certain requirements set down under the FAIS Act, known as the fit and proper requirements.
These requirements are aimed at ensuring advisers are competent to give advice because they hold certain minimum qualifications, have a certain amount of experience, have passed certain regulatory exams and have had the relevant business and product specific training.
If they do not yet have these qualifications, they may be able to work as a representative under supervision of a more qualified adviser.
Professionally competent
Advisers also have to maintain and develop their professional competence by meeting annual continuous professional development requirements that cover technical expertise, knowledge, skills and ethics.
Fit and proper advisers and advisory practices have to prove they are financially sound, have certain operational abilities and that they have honesty, integrity and are of good standing.
The operational requirements extend to the likes of a fixed address, adequate communication systems, the ability to store documents and a bank account. It also includes governance of the advisory business that should be aligned with the complexity of the practice.
The honesty and integrity of an adviser or a practice is monitored by way of the adviser or key person's involvement in any dishonest, fraudulent or unprofessional behaviour.
Advisers or practices have to prove they have the financial resources to carry out their activities and to supervise employees at all times.
Any person or entity who is an unrehabilitated insolvent, under liquidation or provisional liquidation, or in business rescue will be unable to meet the financial soundness requirements.
While these requirements go some way to ensuring that you only get advice from honest and suitably qualified people, they cannot ensure everyone is honest all the time and cannot ensure you will get the best advice.
You need to inform yourself as much as you can to choose a good adviser who earns your trust. Some of this may come down to finding an adviser with whom you are comfortable. Read: How do I find a financial adviser who is right for me
Beyond the regulatory requirements, good financial advisers are typically well qualified to give advice.
One of the most relevant qualifications is the post-graduate diploma in financial planning. Financial planners who have this qualification and belong to the professional organisation for financial planners, the Financial Planning Institute, are entitled to call themselves Certified Financial Planners or CFPs.
Advisers who use this accreditation also agree to abide by the FPI’s code of ethics and its disciplinary processes.
You may also take comfort if your adviser has qualifications beyond a CFP, such as being a chartered accountant, having a law degree or higher diploma in tax planning. These qualifications may also help you determine whether or not the adviser is the right one for you or not – you may prefer an adviser who has specialised more in coaching than in technical skills.
Qualifications are a good start, but you should also check what experience your adviser has. This may also shed light on whether the adviser is a good match in terms of having the right skill set to give you the advice you need.
