How to choose a financial adviser, and why

Johannesburg - For most South Africans, talking to a financial adviser is something they do when they get married, or reach retirement age and need advice on what to do with their pension. But the fact is that financial advice can help at any stage of your life, and building a long-term relationship with an adviser can help you reach your financial goals faster, says employee benefits firm NMG.

When choosing a financial adviser, the most important thing is to make sure you have a rapport with the adviser, says head of financial planning at NMG Benefits, Stian de Witt.

“A financial adviser is there to help you create a financial plan and support you in implementing that plan as life is too short to do business with people you don’t like.  You’ve got to feel that they’re interested in you and your financial goals, and not just another client on their books. Then ask yourself a few key questions,” says de Witt.

Is the adviser competent and trustworthy?

Your financial adviser should be upfront about their qualifications and experience. The Certified Financial Planner (CFP) designation is an internationally recognised standard for financial planning professionals. Financial advisers with the CFP designation are usually members of the Financial Planning Institute of Southern Africa (FPI), which has strict requirements around qualifications, experience, and ethics.

What services does the adviser provide?

It’s important to understand what services the financial adviser can provide, and whether they provide – and help you implement – advice. Find out how often you will have contact, what reporting you can expect, and how often you will review your financial plan together.

How do they charge?

Financial advisers are remunerated in different ways, and this can affect their decisions. For instance, if the adviser earns commission for selling certain products, they may have an incentive to sell those products, whether they meet your needs or not.

“Your adviser should be transparent about how they earn fees. Is there an upfront or ongoing fee? Is the fee charged as a percentage of the amount invested or the assets under management? The most important thing is that you understand how the fees are charged and that you are comfortable with what is being paid,” says de Witt.

Is the adviser independent or a ‘tied agent’?

An independent financial adviser is typically not affiliated to any one service provider, although they may have a few providers that they prefer to work with. Financial advisers licenced to one service provider are referred to as ‘tied agents’. Ask about the adviser’s independence, which providers they use, and how they review the products available in the market.  Working with a tied agent might have certain restrictions that you are not comfortable with

Why you?

Your financial adviser should be able to tell you why you should choose them. You want to know that your expectations are matched by what the adviser is offering and whose approach meets your needs.

“An adviser is going to be privy to your personal information, and you need to be sure that you are comfortable having a long-term relationship with them. They should be someone you can communicate with and who explains things to you in simple terms. It’s important that you take your time and make the right decision.  One specific question that your adviser should guide you to is achieving your (not his/her) definition of financial success – your financial goals may depend on it,” says de Witt.