Martin hesse

Not that long ago, “financial advice” was essentially a euphemism for the aggressive sale of financial products by life insurers. You talk to an advisor or broker if you want to invest or buy insurance. The advisor chose a product from the limited range available, convinced you that it was right for you, and you signed on the dotted line. The dotted line, in the case of investment products, was a contract that required you to contribute a set amount over a set period of time.

This business model allowed the life insurance company to offer the advisor, who had some product training but needed very few financial skills, a lucrative commission based on the full amount paid over that period. , which was a huge incentive for the advisor. sell as many products as possible.

It was a recipe for disaster: Advisors mis-sold large-scale financial products because they were operating in their best interests, not yours.

Many things have changed. Investment has become more democratic thanks, among other things, to the emergence of the asset management industry, which offers a bewildering choice of non-contractual collective investments. And it has become easier to invest directly in the stock market, through accessible and low-cost online platforms.

Importantly, regulators have cracked down on the advice and sale of financial products, through the Financial Advisory and Intermediary Services Act 2002 and, more recently, the Fair Treatment of Clients regime. This made it more difficult for an advisor to sell you a product without first properly assessing your situation and financial situation.

However, the scenario I described at the beginning persists. There are still far too many advisers who have minimal qualifications and are, to put it bluntly, little more than salespeople.

Lucky for you, the consumer, a new generation of advisors has elevated financial counseling to a profession – where it should have been in the first place. The financial planner (and I will use this term to distinguish such a person from a regular advisor) has a postgraduate degree, provides a level of service similar to what you would expect from a family doctor or lawyer , and is bound by a professional code. They are someone you can build a long-term relationship with and who acts in your best interests to help you reach your financial goals.

The top echelon of financial planners in South Africa has the internationally recognized designation of Certified Financial Planner (CFP) and is a member of the Financial Planning Institute of Southern Africa (FPI).

David Kop, Executive Director: Relevance to REIT, dispels the seemingly widespread perception that financial planners are only for the rich.

Kop says, “Our vision is simply ‘professional planning and advice for everyone’. One of the myths is that financial planning is for the rich only, and you should only start engaging in financial planning when you have the money. But the reality is that anyone can engage with a financial planner. Financial planners can be paid in a number of ways – it can be by charging a fee or earning a commission on a product. The first point, then, is to understand how your financial planner is paid and if this is something that you are comfortable with. With around 4,700 CFP professionals in South Africa, you will find someone who will meet your needs.

Kop says financial planning involves developing a financial plan that’s unique to you and designed to help you reach your long-term financial goals, but is flexible enough to adapt to changing short-term circumstances.

“Your financial plan is a working document that needs to be regularly reviewed and updated over the course of your life – you could have a new baby, you could change your goals. Covid hits, and all of a sudden your travel plans go out the window, and now you’ve saved that jar of money, so what else can you use it for?

“A lot of people think financial planning is about planning for retirement and yes, planning for retirement is part of your financial plan. But as you travel, there are other things that are going to happen. Your kids might want to go to college someday, or you might want to take your partner on a romantic trip to Paris, for example. So there are certainly milestones that your financial plan will have to meet, ”says Kop.

A planner can be likened to a general practitioner: while the planner should consider all of your financial needs, he can refer you to a specialist if necessary.

Kop says, “The field of financial planning is so vast that it’s almost impossible to be an expert in everything. So very often the role of a financial planner is to be your coach and guide and help develop your plan and then work with other professionals to help you implement that plan. However, the planner must have sufficient financial knowledge that if he or she refers you to a lawyer to help you draft your will, for example, the planner will be able to say how the will you have drafted fits in. your overall plan. “

What are the telltale signs that an advisor is not working in their best interests?

“You have to be aware that financial planning is not about the product. The product is a tool that a planner will use to help you achieve your goals. So if you find that the advisor’s conversation with you is all about the product and not you, that’s probably the first tell-tale sign that someone is just there to sell you a product.

“Financial products are vitally important and necessary in our ecosystem, but from an advisory and planning standpoint, the first step is to know yourself better: what you want to achieve, what your goals and your goals are. dreams. Then the planner will apply his skills in order to achieve your goals. If this is the approach your planner takes, you know you are on a financial planning journey. But if the approach is just trying to get you to buy a product and worry about advice second, then you’re in a product sales environment, ”says Kop.