Choosing a financial adviser is a little like choosing a doctor. It’s about so much more than the letters behind his or her name. In fact, whether your adviser is a he or she may be a key factor to you. It’s all very personal, which is why you need to give careful consideration to a number of things before you engage with a financial adviser.
It is not that the letters behind a name don’t matter: qualifications are critical. While you may never check on the qualifications of your doctor, ensuring that you engage a suitably qualified financial adviser is a must. The golden standard is the Certified Financial Planner (CFP) qualification, which is one of the best that a financial adviser can achieve.
However, more than just finding a well-qualified adviser, the letters may give you some clues about what kind of adviser you are engaging. One with a tax qualification as well as a CFP may be good at giving you tax advice, while a chartered accountant will be number-focussed and a lawyer will probably help you draft your will.
Some advisers manage investments for you, while others have chosen trusted partners or discretionary investment managers to do this on your behalf.
An adviser with a coaching qualification, however, may be more hands on when it comes to helping you identify and reach your life goals. Doing that may include helping you to manage your spending.
You may also want to know if your adviser is an independent adviser who will recommend what he or she believes are the best products for you, or a tied one who is employed by a financial services company to advise you about its products.
While the person to whom you entrust your money needs to be qualified and capable of serving your financial needs, he or she also needs to be someone who can relate to you. If you’re a single mom, it may give you a high level of comfort to engage a female financial adviser who is also a mom, if not a single mom.
If you’re close to retirement, you may want to work with an adviser who is in a similar season of life as opposed to a young adviser. Even if you’re indifferent to age and gender, what you want is good chemistry with your adviser.
Having a good connection with your adviser is important because you might not always like the advice that you are going to get. A good adviser will potentially challenge you and try to protect you from yourself, be it your own biases, the urge to act impulsively or from inertia or fear. If you trust the adviser, however, and the advice is delivered in a way that you can receive it, the relationship is more likely to work for you.
Before you engage with an adviser, you also need to know what you can expect from the relationship. If you’re looking for someone to endorse financial decisions you have made, you may be looking for an adviser who is focussed on checking your numbers and giving you advice about how complete your plan is. You are also probably looking for an adviser who charges a fee and you may want to implement your decisions yourself.
A financial coach
On the other extreme, you may be looking for a financial coach.
A financial coach is someone who will empower you to do the things you want to do. A coach will engage with you regularly and help you to help yourself rather than teach or show you what to do.
Some advisers are focussing on coaching, but there a very few financial advisers in South Africa who offer full-blown coaching and financial advice services. If you want both services, when you engage such an adviser, they should outline what each service entails and what they cost.
There are many more financial coaches in South Africa, but remember there is no regulation of financial coaching and a coach does not have to be qualified to give advice. The best you can look for in a coach is for membership of the International Coaching Federation.
Financial advisers, on the other hand, need to be suitably qualified and registered with the Financial Sector Conduct Authority to give you advice.
Some advisers refer to themselves as financial life planners, and focus on helping you identify, and use your money to achieve, your life goals. Their initial meetings with you will focus on you and what you want out of life rather than on what you have and whether it is enough.
It helps to understand that some independent advisers segment their clients according to the amount of money they have invested as a result of their advice – known as your assets under management – as they earn a fee based on those assets.
In such cases, this will generally determine the number of hours they spend serving you and on your annual review, in particular. Ask a prospective adviser what you can expect from them so you can manage your expectations.
Accessible
It’s important you know how accessible the adviser is, as you may have an expectation of a quarterly meeting when the adviser can only offer you annual reviews.
If you like a face-to-face meeting, you will need to be in relatively close proximity to your adviser. Some advisers serve clients in other cities and even clients who have emigrated, but check that you are comfortable with how, and how often, they will contact you.
If you have a spouse, you may want to check if your spouse will be included in meetings and if he or she is comfortable with the adviser you have chosen.
You may also want to check what services your adviser offers and which he or she outsources. Is your adviser an authorised medical scheme broker, or is there one in his or her practice? Does your adviser do short term insurance, draw up a will or provide help with filing tax returns? Or does the practice outsource this work?
You can glean a lot about a potential adviser and his or her focus by reading articles or posts, or listening to podcasts or watching webinars he or she has written or delivered. Then set up an initial meeting to assess if your initial impression was correct before you make a final decision on whether they are right for you.
