The financial planning process is complex and should be done thoroughly. Considering all the complexities involved, it takes a high level of skill, experience, and substantial studies to compile a detailed financial plan and to embark on the long road of a “financial guidance partnership” between a planner and a client. Financial advisors should offer much more than just drafting a financial plan …
One must also differentiate between a professional financial planner/advisor and a product pusher (which unfortunately still exists).
Given the complexities that range from financial planning, retirement planning, investment planning, estate planning, tax and all the sub-categories that go with each of these headline services, it has become the norm for financial advisors to specialise in one of the main categories.
Advisory practices (the professional ones at least) have evolved to become professional financial planning hubs where a team of individuals offer specialist services in each of the categories. Professional financial planning practices have also started to upskill to offer “soft touch” services like financial coaching, life coaching, trauma counselling in the event of death and divorce, and family office services where all the financial affairs of a complete family are dealt with for high-net-worth individuals.
Becoming a professional financial planner with a CFP® accreditation requires that you obtain a post-graduate diploma in financial planning and gain two years’ experience before obtaining CFP® status. Many CFP® professionals further their studies by obtaining advanced postgraduate diplomas in financial planning. This means that CFP® professionals have between four and six+ years qualifications at levels of NQF8 and higher. This is the equivalent level of education of highly respected chartered accountants, specialist advocates, degreed engineers and doctors.
Why am I elaborating on these services and skillsets? Financial advisors work and live in a tarnished environment that was brought on over many years of bad advice and forced selling. “Insurance salesman” jokes still abound, and unfortunately professional financial planners/advisors or wealth managers are far too often still compared to insurance salesman.
Unfortunately, there are still far too many individuals who call themselves financial advisors but who are factually product pushers for large insurance companies. That is not their fault, it is the system that was created by insurers over many years where production targets are forced onto new entrants. If the targets are not met, their contracts get terminated. These products also generally carry high levels of commission. A commission that is difficult to ignore when deriving a financial plan … It is also unfortunate that the entry-level into the financial services industry is not set very high by some insurance companies. The system is broken, and individuals who require any form of financial advice must tread carefully.
Make sure you are being advised and not sold …
So how do you choose a suitable financial planner/advisor/wealth manager?
- Firstly, if you want to contract the services of a professional financial planner then you must expect to pay professional fees. You get what you pay for. I cannot fathom that people are prepared to pay R150 000 plus commission on the sale of a R3 million house but are reluctant to pay R25 000 for professional financial planning services and guidance where larger amounts are applicable! In one instance your wealth is reduced by a single transaction, in the other, you are set to gain financial freedom over a period of many years through an association with someone who will guide you for many years. This is not the time to bargain hunt for the lowest planning fee. Good luck if you think you will get the same service and outcome by paying the cheapest fee …
- There is no such thing as a free service. Where there is no fee attached to the planning process, be assured that there will be a product linked to it.
- If you have a clear idea of what you require, then it may be possible to do your own planning and select your own products or solutions. There are more than enough online offerings where you can select your own solution without an advisor if you have derived a clear plan that is implementable. We have clients who pay us a planning fee, and they do their own implementation. We consult with them yearly for which we get paid just like any other professional such as a doctor, attorney or accountant.
- Check the FPI (Financial Planning Institute) website for the names of advisors registered with them. These advisors are bound by an ethics code and a code of conduct that they need to adhere to. The FPI is also the organisation in SA that accredits CFP®.
- If you want the services of an advisor, ask the following questions:
- What services do they offer?
- What is the cost of each service?
- Check their website and social media following.
- Are they independent or are they linked to any other organisation?
- What companies do they hold contracts with?
- What are the qualifications and credentials of the individuals that you will be working with?
- What is their level of experience?
- Are they registered with the Financial Services Conduct Authority? Ask for the registration number.
- How many clients do they have? (I don’t believe an advisor should have more than 100 clients)
- Ask for client names as referrals.
After you have done all the above, meet with the advisor and see if they are someone you can have a multi-decade relationship with and with whom you will be comfortable sharing very personal information. After all, financial advising and planning are first and foremost about human interaction and relationships.