5 Questions for your Financial Advisor
In honour of World Financial Planning Day (5 October 2022), Investonline has compiled five questions to ask your financial advisor.
Independent financial advisers are more than just brokers. They provide expertise on long-term financial planning and your relationship with money. Good financial planners have the objectivity and experience to help you face life's financial challenges and take advantage of opportunities.
Choosing the right financial planner is akin to choosing a business partner. There must be a certain level of trust, transparency and mutual respect for the relationship to last.
In the spirit of celebrating advisory relationships, here are five questions to ask your financial advisor.
1. Are you independent?
In South Africa, there are two types of financial advisers.
Tied agents are employed by a product provider and earn commission by selling the products of their employer. Most advisors in South Africa are tied agents.
There are also "untied" advisors. They operate independently, and do not work for any particular product provider.
Having an independent financial adviser is highly advantageous.
Independent advisors have the objectivity to help you build towards your financial goals. They also help you to compare the wide range of products available on the market, and assist you in selecting a product that is best suited for your financial circumstances.
2. What are your qualifications?
By law, all financial advisers must be licensed by the Financial Sector Conduct Authority (FSCA). To get a license, advisors need to pass regulatory exams and fulfil the FSCA's Fit and Proper requirements, which include honesty, integrity and competency.
All advisers must prove to the FSCA on an ongoing basis that they are continuously developing their professional competence.
You should review the disclosure documents provided to you, as these will also inform you as to which products your financial adviser is licensed to advise you on.
Lastly, if you are meeting with a prospective advisor, ask them about their academic credentials and experience. You wouldn’t see a vet if you had the flu, so ensure you see a suitably qualified planner concerning your finances.
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3. What is your fee structure?
Disclosure and transparency are important, so it is best practice to ensure that your adviser explains what fees you will pay and how they work.
Financial advisers can charge fees in three ways:
Fees cannot be charged unless you have agreed to them upfront. Make sure you understand how the fees are structured and what you will be paying at the outset.
4. How can you help me grow my wealth?
Quality financial planners spend time understanding your needs. They will help you put a plan in place that reflects your goals and your risk appetite.
Investors often switch between products or buy and sell investments at the wrong time because the decision is based on emotion. This can destroy the value of your savings. A financial planner's role is to help you look at your finances rationally, and to help you not act for the wrong reasons.
5. What is YOUR investment strategy?
As you are speaking to a finance professional, you should expect your advisor to put their money where their mouth is. You are expected to share intimate financial information, so why can’t they reciprocate?
Trust works both ways, after all.
Your needs and goals will likely be different from your financial advisors’, hence your financial plan may look quite different to theirs. However, knowing that your advisor has their own affairs in order can inspire confidence.
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