Retire Secure

Why I hate so called “financial advisors”

The life insurance and investment industry is full of badly qualified salespeople who earn a living by selling financial products that are not necessarily in the interest of the client in the first place.

Not a day goes past when I do not come into contact with a client who has been the victim of a so-called “financial advisor”. The life insurance and investment industry is full of badly qualified salespeople who earn a living by selling financial products that are not necessarily in the interest of the client in the first place. Education policies, life insurance, funeral plans, costly RA’s, expensive investments, high commissions to name just a few are often advocated to those who are the most vulnerable and in fact most in need of sensible and affordable advice.

What makes me so angry is that these salespeople give my profession a bad name. Most of my consultations with my clients are spent undoing not only the financial implications of previous expensive ‘advice’, but also earning the trust and belief from my client that I am not like the rest. There will be major regulatory changes over the next few years and I welcome this if it further weeds out incompetent people, although I fear these regulations may have unintended consequences.

So here are some ‘rule of thumbs’ that I recommend you look out for, before accepting advice from a financial ‘advisor’.

RULE #1 – Make sure your planner is a CERTIFIED FINANCIAL PLANNER ® professional. The CFP® designation is internationally recognised as the benchmark for professional advice. Holders of this designation have met stringent qualification and competency requirements as well as abide by unequivocal ethical standards. This means that not only will you have peace of mind regarding the technical accuracy of the advice, but also the integrity that underpins it. They are required to continue with ongoing education every year to make sure they are up to date and competent. All CFP’s are members of the Financial Planning Institute, which is the professional body overseeing financial planning in South Africa.

RULE #2 – A useful test of a financial planner is how they behave at your initial consultation. If the first sentence is – “let’s look at your life insurance portfolio” - then run! This is a product salesperson sizing you up for another policy or replacement policy. Financial planning is about getting control of all aspects of your life from your Will to budgeting to tax to retirement and savings. It is not simply about products. Financial planning should map a strategy for you that can be revisited on an ongoing basis to help you achieve your goals. It is definitely not about another policy!

RULE #3 – If your financial planner does not disclose fees and commissions in a frank and upfront manner then it may be cause for worry. A CFP professional charges fees for their professional knowledge and ability. It is likely that new legislation will significantly reduce commissions paid by some companies. Imagine going to a medical doctor and only paying him if you bought some medicine? The same should happen with financial planning. You should be confident that you are dealing with a professional and not a salesperson. The fees that are charged should be justified and commensurate with the work that your planner is doing.

RULE #4 – Beware of the overuse of the word “Independent”. There is a myth that simply claiming to be an independent financial planner means that the advice given is somehow of a better quality and more appropriate. Independence does not guarantee quality. Bad advice remains bad advice no matter what wrapper you put on it. I have seen shocking and inappropriate advice from both independent planners and those working for a single insurance company. When in doubt, stick to rule 1!

RULE #5 – Make sure that ongoing investment fees and management fees are earned. This sounds obvious in that you are paying for a service and should expect that service in return. Most people are not aware that their investments are earning fees for someone. If that fee is not earned with regular contact and value added to you, then it is time to question the planner. Seemingly small costs of percentage points can make a significant difference to future investment outcomes. I am not suggesting that investment management fees are bad, just that they need to be seen to add and demonstrate value to you.

RULE #6 – Demand to know why? Many people have life insurance, savings and funeral polices that have been sold to them using a mixture of fear, glossy brochures and other underhand sales techniques. After all, who doesn’t want a great education for their children or to provide for their family, but is another policy the solution? If you don’t have a clear idea why you have a policy or investment and exactly what role it plays in your financial plan then you need to speak to your planner and discuss why it is appropriate that you have this policy in the first place.

RULE #7 – This is a cliché, but true. If it sounds too good to be true it normally is! A proper CFP professional will be able to discuss and place you in a position to make an informed decision. The benefits and drawbacks of each recommendation must be considered and you should fully understand what route you are following. Claims of guarantees and inflated investment returns should be treated with suspicion.

RULE #8 – See rule #1

Charles Horner is a CERTIFIED FINANCIAL PLANNER® and a retirement and investment specialist with Sanlam. He writes in his personal capacity and this article and opinions must not be construed as advice in terms of the Financial Advisory and Intermediary Services Act.