Conversations to have with your prospective financial advisor

There is substantial evidence to suggest that investors who incorporate professional advice into their financial planning are more likely to achieve their goals. In addition, those who partner with reputable advisors tend to make better financial decisions which, in turn, leads to better outcomes.

With this in mind, finding a trusted advisor should be of paramount importance. In this article, we explore some conversations to have and questions to ask of your new advisor.

All financial institutions, including financial planning practices, are regulated by the Financial Sector Conduct Authority (FSCA) which is the market conduct regulator for institutions that provide financial products and advice. At the outset, therefore, check that your advisor is licensed as a Financial Services Provider (FSP) and that their licence number, which takes the form of FSPXXXXX, is reflected on their corporate stationery, website and marketing material. The FSP number indicates that the practice meets the stringent requirements set out by the FSCA in terms of experience, qualifications, ethics and operational ability and that they are licensed to provide financial advice and services. If you want to check if your advisor’s practice is duly registered, you can do a search on the FSCA website. Alternatively, call the FSCA directly at 0800 203 722 and ask them to verify the registration.

Over and above being registered to provide advice, establish what qualifications your advisor holds that augment their registration, licensing and experience. The Certified Financial Planner® designation (abbreviated as CFP®) is the internationally recognised standard for financial planning professionals and provides assurance that your advisor upholds certain ethical standards. Most duly-qualified financial advisors hold an undergraduate degree, such as a B.Com majoring in finance, investing or financial planning, together with a postgraduate qualification such as a PGDip in Financial Planning. Many advisors further augment their expertise with additional postgraduate qualifications such as law or tax qualifications.

As with most professions, hands-on experience in providing financial advice is absolutely essential so take time to establish exactly what experience your advisor has and how long they have operated in the industry. That said, bear in mind that financial planning is a broad field that covers a range of areas including investments, retirement funding, tax planning, insurance, estate planning and healthcare, so be sure to understand to what extent your advisor has experience in each of these fields – and that their experience matches your specific advice needs. If you have holistic financial planning needs, ideally look for an advisor that operates a full-suite practice with organisational depth to ensure that you can centralise your portfolio and access the advice you need within one planning practice.

If your financial advisor holds the CFP® designation, they will likely be registered with the Financial Planning Institute of Southern Africa which is the recognised professional body for financial planners in South Africa, and the only institution in this country to offer the CFP® certification. CFPs®are required to update their membership annually through the accumulation of continuous professional development points and the payment of membership fees. This is to ensure that all FPI members keep up-to-date with industry developments and ethical standards and that advice standards remain at a professional level.

With holistic financial planning advice needs, you will no doubt be looking for a trusted advisor to partner with for life. If this is the case, it is important to understand how the financial planning practice is structured, the professional depth of the organisation, who you will deal with on an ongoing basis, and what the succession plans of the business are. The nature of the advisor-client relationship is generally such that the advisor is entrusted with an enormous amount of personal and financial information – and it is important that a prospective client has confidence that this information will be safe. What mechanisms does the practice employ to ensure that their data is kept safe? What professional indemnity insurance does the advisor hold? If something happens to your advisor, who will take over your portfolio? How is the passing on of institutional knowledge and client affairs guaranteed? Does your financial advisor have ownership in the business, or can their employment be terminated at any time, leaving you without an advisor? You are within your rights to ask these (and other) important questions to ensure that you are comfortable with both the person and the practice.