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Personal investing

PART 5: The role of financial advice in your investment success

You wouldn’t gamble with your health by not seeing a professional, why do it with your financial future? Consult an independent financial adviser to help you get the most out of your investments and to understand the tax implications of your decisions. 

“You’ve gotta be in it to win it”, as the well-known saying goes. The same is true for investing. The choice, jargon and other complexities can be overwhelming, but you need to get started to enjoy the long-term benefits. The good news is you don’t need to do it on your own; improve your chances of investing successfully by making use of the services of a good, independent financial adviser.

Independent financial advisers are more than just product pickers. They are independent of any service provider and their role is to assist with long-term financial planning. They have the objectivity and experience to help you meet the full range of challenges you might face.

An adviser can help you to avoid common investing mistakes

Independent financial advisers (IFAs) play an important role in helping you make decisions that are right for your circumstances and, importantly, helping you to avoid the pitfalls of investing on your own, which include:

Questions to ask your financial adviser

Consulting with an independent financial adviser is much like seeing a medical professional. Perhaps you think you don’t need the advice of a doctor, and while this may be okay in the short term, the decision to not see a medical professional could severely impact your prognosis further down the line. However, as with doctors and other medical professionals, not all financial advisers are equal. Make sure you feel comfortable before you agree to become a client. These questions are a good starting point:

1. Are you independent?

There are two types of financial advisers. Those who are independent – i.e. they do not work for any particular product provider and do not earn commission off the products that they sell, and tied agents, who are employed by a product provider and may be incentivised to sell.

Independent financial advisers have the objectivity and experience to help you on a path to reach your financial goals. They also help you to make sense of the wide range of products available and assist you in picking a product that is best suited for your needs and circumstances. 

2. What are your qualifications?

By law, all financial advisers must be licensed by the Financial Sector Conduct Authority (FSCA). To get a licence, they need to pass regulatory exams and fulfil the FSCA's Fit and Proper requirements (including honesty, integrity and competency). All advisers must prove to the FSCA on an ongoing basis that they are developing and maintaining their professional competence.

Apart from these basics, you should question prospective advisers about their academic or other credentials. Also, be sure to read the disclosure documents provided to you as these will also inform you as to which products your financial adviser is licensed to advise and offer you recommendations on. You wouldn’t see a dentist if you were experiencing a chest pain, so ensure you see a suitably qualified adviser concerning your finances.

3. What is your fee structure?

Disclosure and transparency are important so it is best to ensure that your adviser explains to you upfront what fees you will pay and how they work.

Fees are usually charged as a percentage of the value of your investment and there may be an initial fee and an ongoing fee. Other advisers use a different fee model entirely, charging for the advice provided directly, as a rand amount, usually an hourly rate. Fees cannot be charged or paid 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?

Good advisers spend time understanding your needs and helping you put a plan in place that reflects your goals and your risk appetite. They help you to invest with discipline and understand how emotions can lead you astray in the investing process.

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 adviser’s role is to help you look at your finances rationally, and only act for the right reasons.

Where to find a good, independent financial adviser

Your IFA will advise you on some of the most important decisions in your life, so your choice should not be taken lightly. A key consideration in selecting an adviser is trust, so a suitable starting point in looking for an adviser is to ask for a recommendation from someone whose judgement you value. You can also use our Find an independent financial adviser service or turn to the Financial Planning Institute of Southern Africa (FPI) for help.

Read more about saving for education in our five-part series.

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