The most important relationship you will build in your life, apart from family, should be with your financial advisor or broker. It’s of prime importance because it should be based on trust. There are few levels of engagement that require such personal disclosure of one’s finances and complete confidence in the honesty of the person to whom you entrust information concerning your life’s savings.
Transparency should be key to your choice of advisor. You should be looking for a number of critical attributes – someone who can meet a stringent ideal and genuinely act as your friend, putting your interests above their own.
Ticking the boxes
- You should feel comfortable with your financial advisor. Integrity is prime, as is openness. Your advisor should be clear about the costs of your investments, including their fees and how these will be charged. An upfront and factual approach about fees is paramount to trust and transparency.
- Transparency includes making sure you will benefit from accurate information and judicious decisions. You should be aware of anyone who is too keen to sell you a product rather than act in what is your best interest.
- He or she should be a fiduciary with proven qualifications and good references.
- Building a good relationship with an advisor is also about matching your own profile in age and educational background. When you find the right person, you should be planning to spend many years of profitable engagement, so you need to be sure of getting along well, having an eye on the ball together and for the long term. After all, you might well find yourselves growing old together!
- Your advisor should never force opinions on you but rather provide the best road map for you to reach your financial goals. Building trust and credibility through transparency is vital.
- A professional advisor is also there to advise you on about what not to do. They are there to protect you from your impulsive self!
- Transparency includes good reporting and communication skills and the ability to provide services across concomitant issues such as insurance, tax, retirement and legal advice.
The nitty-gritty – how does your financial advisor get paid?
In general, there are two ways financial advisors get paid:
Commissions – These are paid from 3rd party product companies who pay advisors specifically to punt their products above others. These payments are rarely disclosed. You may be under the impression that the service the advisor is providing is for free – but the companies paying the commissions may be charging more for their products to you to compensate for their payments to the advisor, and over years you may end up paying more than you realise, or need to.
If advisors work for companies rather than you, you probably can’t be sure that your best interests are being served. These advisors are working for the companies that pay them, and become salespersons for the financial products rather than working for the most advantageous results for you.
Fees – Asset-based fees for investment services or fixed / hourly fees for financial planning services.
Advisors who charge annual fees are paid directly by their clients, which makes them accountable only to their clients. This is in contrast with commission-based advisors, who are not required to fully disclose how they and their firms are compensated.
Hybrid Charges – So named because the advisors wear two hats. They charge fees for advice, so adhere to fiduciary standards, but also offer investment products for which they are paid. They work for both fees and commissions based on the requirements of the investor.
A good client-advisor relationship means there should be full disclosure so that you are able to make wise, informed decisions. Always ask your advisor to disclose in writing how he or she is compensated and by whom. This is critical information to knowing how your interests are being served.
Check your policies, check your life
VeriFi is an online tool that provides you with an immediate and up-to-date overview of all your life insurance and investment policies by sourcing information from all the major life insurance companies – and presenting the information in a comprehensive report.
With VeriFi you are able, for no charge, to access information on all your life and investment policies at a glance. You are able to check the types of policies you have, the names of the insurance companies providing the cover, the nature and extent of the insurance cover provided – and other vitally important information such as the details on your policies being correct.
To find out more, please visit: www.verifi.co.za