Conversations to have with your prospective financial advisor

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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 conversation to have and questions to ask of your new advisor.

Registration and licensing

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 with your advisor that he or she is licensed as a Financial Services Provider (FSP) and that their license 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 by clicking here. Alternatively, call the FSCA directly at 0800 20 3722 and ask them to verify the registration.

Qualifications and designations

Over and above being registered to provide advice, establish what qualifications your adviser holds that augment her registration, licensing and experience. The Certified Financial Plannerâ designation (abbreviated as CFPâ) 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.Comm 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.

Industry experience

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 he has 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 his 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.

Professional membership

If your financial advisor holds the Certified Financial Plannerâ designation, she 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 CFPâ  certification. Certified Financial Plannersâ 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.

Succession planning

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 her 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.

Fee structuring

There have been significant moves afoot to transition the financial planning industry from a commission-based one to one that charges advice fees to enhance the professionalism of the industry. While historically the industry was plagued by product salespeople incentivised to sell financial products in return for high, upfront commissions, there are now multiple, reputable fee-based advisor practices that provide independent and holistic advice on a professional fee basis. During the course of your first meeting, your advisor should provide you with a disclosure letter that, amongst other things, sets out exactly how she will earn her fees and what you can expect in terms of costs going forward. Any lack of upfront transparency in relation to fee structures should be viewed circumspectly.

Independent advice

Establish to what extent your advisor is able to dispense truly independent advice. Remember, any limitations that he has in terms of the advice he can give may impact directly on his impartiality and ability to recommend products that are in your best interest. The financial planning industry is a sizeable one and, while it is not feasible for a financial advisor to be able to provide advice on every available financial solution, ideally seek an advisor who is licensed to provide advice on a broad range of solutions with no inbuilt incentives or commissions that could potentially sway her advice.

Service delivery

Once you are comfortable that your advisor is the right fit for you, establish what you can expect in terms of service delivery. Ideally, be upfront about the level of personal care and advice you expect to receive from your advisor and the practice as a whole particularly when it comes to how frequently you would like to meet, the extent and quality of the advice you require, how regularly you would like to meet, and the service level turnaround times you expect when contacting her or the practice. Personal circumstances tend to change rapidly so ensure the future accessibility of your advisor to revise and update your financial plan as and when circumstances dictate. Determine upfront what reports, newsletters and information you will receive from your financial advisor and how often. Determine what mechanisms your advisor uses to keep clients updated, what communication you can expect to receive, and what you can expect in terms of compliance, confidentiality, protection of personal information and technology.

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