Choosing a financial advisor can be a daunting task. What should you look for and who can you ask for a qualified referral? How do you judge if you have found the advisor who is right for you? Is it guesswork, or is there a fundamental basis that can be used to compare good advisors and bad advisors?
The good news is that a few suggested guidelines exist when choosing your financial advisor.
My colleague and mentor of many years, Bryan Hirsch, distilled the process of selecting a financial advisor into a simple three-step process – filling out the 3 Cs:
- Capability
- Compatibility
- Confidence
Capability
The Financial Advisory and Intermediary Services (FAIS) Act governs professional financial advisors in South Africa (SA). This legal framework ensures that advisors are qualified, fit and proper and can advise their clients appropriately. Advisors adhere to a strict code of conduct regulated by the Act to ensure they act in the best interests of their clients and uphold the integrity of the financial services industry.
The first check is to confirm that the advisor and the FSP (financial services provider where the advisor works) are registered and accredited with the FSCA (Financial Services Conduct Authority). In SA, advisors must be registered as a representative with an approved FSP to provide you with investment advice. The advisor’s name will appear on an accredited FSP’s representative register. The advisor’s accreditation can be confirmed on the FSCA website.
To run the check, input the FSP’s name or the FSP number and then check the representative register for your financial advisor’s name. This will also show you which products and services the advisor is authorised to advise their clients on. The FAIS Act is there to protect you as a client. It is essential that you are dealing with a properly authorised advisor to protect your interests.
Compatibility
A trusted advisor/client relationship is central to identifying your needs and helping you to reach your financial goals. It stands to reason that open communication is a must. Can you communicate effectively with the advisor? Do you feel heard, and is your point of view validated? Is your view of the world aligned with the advisor and do you think the advisor really gets you?
The remuneration model (how your advisor charges for services rendered) should be fair and make sense to you. Ideally, there should be a strong alignment with your financial outcomes as the client. However, ‘fair’ can be a relative term and it is essential to know the legislated maximum fees that can be charged for the type of investments you own. How does your fee structure measure up? Does your advisor lose when you lose and gain when you gain?
Confidence
Do you feel confident in the financial advisor’s ability to be the expert you can rely on when dealing with your financial affairs?
Confidence, like trust, is built over time. Knowing that the advisor is duly capable of advising you and is compatible with you as an individual are critical first steps in this process. This in itself should build confidence, but at the end of the day, these measures are still more of a gut feeling.
So, what practical areas can you assess to build confidence in an advisor?
An important issue to consider is the actual behaviour of the advisor in their investing. Does your advisor practice what they preach? Would the advisor genuinely invest the same way they advise you to invest if they were in your position and circumstances? A good financial advisor/coach should put themselves in your shoes and advise you in your best interest. At the end of the day, integrity matters and will affect your financial outcomes.
While financial advice is a highly personal affair, referrals also count. How did you come to contact this particular advisor? Do they (or their company) have a good name in the marketplace or industry? Did someone whose opinion you trust refer the advisor to you? This can add weight to the advice provided to you.
A good advisor will put you in a position to make an informed decision regarding your investments and policies that you feel will best advance your stated financial goals. Confidence in the advice provided is essential to ensuring you get the maximum value from the client/advisor relationship.
So, when in doubt about appointing a financial advisor, always refer back to the Three Cs.
Disclaimer: The contents of this article is for information purposes only, and the accuracy, completeness, timeliness, or correct sequencing of any of the information contained herein cannot be guaranteed and should thus not be construed as investment advice. Readers should thus only act thereon after having consulted their financial adviser.
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