Choosing a jewel in the crown among financial planners
This is not a political journal. The recently concluded Local Government Elections inspired me to think about the various qualities to be considered when choosing a financial planner, or advisor. With so many such individuals in the industry, how do you choose that jewel in the crown among financial planners?
As I write this article, the most renowned soccer match, the Soweto derby was about to take place on Saturday 6 November. As you read, you may be celebrating a win or sobbing the loss of your favourite team. The success of any athletic team depends on a credible coach.
Similar to a sports coach, a financial planner can help you formulate your future. He or she could assist in developing a plan which identifies your financial goals and builds the means of achieving them into your monthly budget. Financial intermediaries, also known as financial planners (or advisors), act on behalf of individuals or corporate clients to protect their financial security, investments and assets against potential harm or loss. The main role of a financial planner is to investigate the needs of their client and provide the most appropriate insurance cover to match their client’s specific needs and budget.
I would like to suggest that you seek a fit and proper financial planner. A renowned business law firm in South Africa once alluded that the concept of a ‘fit and proper’ person is a fundamental one in many professions, jurisdictions and organisations as it is used to determine a person’s honesty, integrity and reputation in order to confirm that they are fit and proper for the role they are undertaking. There is, however, no single infallible test regarding what constitutes a ‘fit and proper’ person and in some instances, this requirement is not defined in legislation.
The first step in seeking a fit and proper financial planner is to establish a rapport with such an individual. He or she needs to have excellent communication and listening skills. As an investment advisor, they will need to build close relationships with you to really understand your investment goals.
To give good advice, an investment advisor must gather personal and financial data about you. They must understand your tolerance for risk and your expected rate of return on investments. A good investment advisor will use this data to analyse existing investments and make recommendations about what you should be doing going forward. A good planner should know where all your investments are so that your portfolio makes sense. Otherwise you may end up owning the same type of investments in different accounts.
The regulatory landscape has evolved in the financial services industry. There has been an increased level of consumer protection and ensuring that clients are treated fairly. The Fit and Proper requirements as laid down by the Financial Sector Conduct Authority (FSCA) is enforceable to all Financial Services Providers (FSPs), key individuals, representatives and compliance officers. The following requirements should be met:
• Honesty and integrity requirements (or behaviour)
• Competency requirements that consist of experience and qualification requirements
• Operational ability requirements
• Solvency requirements
The above mechanisms aim to reduce the unscrupulous behaviours of certain individuals in the past. It is the responsibility of the consumer to also interrogate the intended relationship with a financial planner (or advisor).
An authentic financial planner would have acquired the relevant qualification and certification. The Postgraduate Diploma in Financial Planning is a sought-after qualification that culminates in the internationally recognised CERTIFIED FINANCIAL PLANNER® (CFP®) professional designation. Being a member of the Financial Planning Institute (FPI) is also a credible feature for a financial planner. The FPI is the only institution in South Africa to offer the CFP® certifications and has been approved by the South African Revenue Service (SARS) as a Recognised Controlling Body (RCB).
The relationship with your chosen financial planner should be long-term in nature. Research shows that 37% of those working with a professional financial planner, strongly agree that they are knowledgeable about financial matters compared to 25% among those not working with a professional.
Sydney Sekese, CFP® professional and
member of the Financial Planning Institute