What does great financial advice look like?

There are tens of thousands of financial advisors in South Africa, yet there is considerable variability in the quality of advice they offer. Many may focus solely on investments and other financial products you may require, but the role of a good advisor is far more demanding.

How do you recognize balanced financial advice that is in your best interests?

  • The Right Qualifications

One indicator of an advisor’s suitability is their professional qualifications. The top echelon of financial advisors in South Africa possess postgraduate qualifications, such as the Postgraduate Diploma in Financial Planning, hold the internationally recognized Certified Financial Planner (CFP) accreditation, and adhere to a professional code of conduct.

  • Are Your Incentives Aligned?

A second crucial consideration is the advisor’s compensation model. How does the advisor earn a living? Is it through commissions on product sales, a percentage of assets under management (AUM), or is the model fee-based, where you are charged directly for the service provided?

As explained, ideally, you want an advisor focused on providing objective advice, rather than solely selling financial products.

A Structured Process for Improving Financial Wellness

Financial planning, at its best, follows a structured process involving several steps. For an optimal outcome, each step must be given due attention. Only a couple of these steps specifically involve products.

1. Discovery: Getting Acquainted

The initial step involves you and your advisor getting to know each other and setting goals. This stage may involve some candid questions from both parties. You need to understand, among other things, how your advisor is compensated and whether there are any conflicts of interest. Your advisor will also need to delve into your personal affairs. It is at this juncture that you should assess whether mutual trust can be established and whether the relationship can flourish.

2. Fundamentals: The Financial Basics

The foundational aspects of finance must be addressed before any discussions about products or planning occur. Do you have an emergency fund in place? How much debt do you have, and how can it be managed? Do you adhere to a household budget? Are there any preconceived assumptions about money that could negatively impact outcomes?

3. Planning: Putting Your Goals on Paper

In this stage, you and your advisor develop a plan to achieve your long-term financial objectives, such as saving for retirement, while also considering shorter-term goals. These could include purchasing property, planning a significant overseas trip, or funding a child’s education. This step will naturally involve recommendations for specific products, including investments and insurance policies.

4. Execution: Taking Action Together

While your advisor may handle technicalities like asset allocation, account setup, and investment performance monitoring, this phase also requires your active involvement. You might need to adjust your spending habits or adhere to a budget. Renowned financial planner Warren Ingram points out that even the best advisor cannot deliver positive outcomes if you are not fulfilling your responsibilities. “If you aren’t doing your homework, even the most exceptional advisor in the world won’t achieve favorable results for you. The relationship falters when the client places the entire responsibility for their future on the advisor,” Ingram emphasizes.

5. Review: Regularly Revisiting Your Plan

A robust financial plan must be flexible enough to accommodate changes in your life, such as career shifts or starting a family, as well as external changes like economic downturns. As a result, your financial plan should undergo regular review, ideally within the context of a long-term relationship with your advisor.

Considering Subscription-Based Financial Advice

Advisors driven solely by-products might concentrate primarily on step 4 while neglecting the other stages. The subscription model, in which you pay a monthly fee for ongoing services from a fee-based financial advisor, offers the most reliable guarantee of well-structured, comprehensive advice and the assurance of a long-standing relationship centered on your financial well-being.

By Rory Brachner, Managing Director at DoshGuide