What to expect from a financial adviser

2014-07-07 08:00

The best financial advisers are often those who are prepared to listen more than tell you what you ought to be doing

Donovan Adams and Bruce Fleming were both finalists in the 2014 Financial Planner of the Year awards. Both finalists are certified financial planners and have postgraduate degrees.

They represent the changing face of financial advice, which is moving from mere product-selling to a professional service. We chatted to them to find out what you can expect from a professional financial planner.

What do you think the role of a true financial planner is?

ADAMS: I often joke with friends that I listen for a living, but it’s true. This is certainly not what the vast majority of people would think, as our industry tends to bombard people by telling them what they ought to be doing. But in reality, the very best advisers aren’t in the business of selling (or telling) you anything.

We seek to understand people and get a window into their unique sets of needs. This involves really listening well. Only then can we suggest solutions that help people merge their money with their life in a way that adds tangible value. Clients who feel heard, understood and appreciated tend to be clients for life.

FLEMING: We are responsible for coaching people to achieving their dreams, no matter what those dreams are and in every stage of their lives. From widows to divorces and retirements, I have dealt with people’s dreams, business failures and retrenchments; and have assisted them in saving for retirement, capital expenses and their general wellbeing.

Do you find you sometimes have to help clients with their day-to-day financial management before they can start to invest? Do you believe this is also the role of an adviser?

ADAMS: Yes and no. Yes in that we, in effect, become financial “coaches”, helping clients visualise their life goals then providing the steps necessary to achieve them. They become accountable to us. But they need to take the steps. As an exercise plan only works when you stick to it, likewise your financial plan is only effective if you persevere and keep at it. The results can take time, but when they do come it is very rewarding.

FLEMING: Absolutely. As part of the initial process, we do a comprehensive analysis of clients’ objectives and finances. We look at every aspect of their unique circumstances, including their dreams and aspirations. As a result, we assist them in understanding what their objectives are and assist them in the mechanics of how to achieve these objectives.

What words of wisdom would you give an individual who is looking to take control of their finances?

ADAMS: Find a CFP professional in your area (check out the FPI website for more info) and engage with him/her. They will be able to give you the bigger picture – in other words, help you zoom out from everything cluttering your finances at the moment. They will ensure you get as efficient as possible and then provide a plan that is tailored for you and your needs.

You can then check in with them on an ongoing review basis and hopefully the results will start to speak for themselves. Nearly all my retired clients tell me they wish they could have come and seen someone like me earlier on their lives.

FLEMING: If you are in debt, pay off the smallest debt first (not necessarily the most expensive). When that has been paid off, use those funds to pay off the next smallest debt, and so on. Using this approach will give you some quick “wins”, which will help you stay motivated. When saving, use compounding growth to your advantage. The earlier you start, the more compounding growth will work in your favour.

Many independent practices tend to focus on higher net-worth individuals or people closer to retirement. What about a client who is just starting out and only has R500/month to invest in their financial future? Do they really need an adviser?

ADAMS: Absolutely. There are many CFP professionals out there facilitating different segments of the market.

Never feel inferior. Go and see a professional adviser for at least a consultation. Be prepared to pay a fee for his/her time as they are not trying to sell you anything you may not need (therefore potentially not earning any commissions). You will get honest advice on whether that R500 should be used to settle debt or best be invested into something suitable.

FLEMING: It is vital to get competent professional advice from a financial planner right from the start. It is often forgotten that the younger one is, the more important it is to secure one’s future income stream. Your biggest risk at this age is that you could lose your most important asset, your propensity to earn.

Once this is secured, the earlier you start saving the better you will be in the long run and, similarly, the better the advice you receive early on, the better your money will perform for you.

As a planner one has to remember that a client will be a client for life, so you should provide an appropriate level of professional service to all clients bearing in mind you are coaching them to be higher net-worth individuals in the long run.

Given recommendations by National Treasury for advisers to separate fees for advice from commission, how do you structure your fees?

ADAMS: My first consultation meeting is free of charge. If a client wishes to engage, we then charge a set fee to go through our new client process, which results in a unique Financial Life Plan tailored to them.

If the client wishes to implement, a smaller additional fee is levied and then an ongoing annual fee is charged on any investments to facilitate the ongoing reviews in future.

FLEMING: We are predominantly a fee-based practice. We charge our clients fees based on their assets with us. In certain circumstances, we will charge a fee for our advice. We will also accept commission on risk business and will discount our advice fee accordingly.

Do you find reluctance by clients to pay for a fee-based service or do you find this becoming more acceptable?

ADAMS: As a practice, Chartered Wealth are proud to have been a fee-only practice since 2002 and have not earned a single rand in commission in that time.

Not only is it becoming more accepted, but people actually far prefer to pay our fees when they realise that this results in the best independent advice – our clients pay us, not some investment company or product house.

I believe there is still too much conflicted advice out there. The move to fee only on investment products is long overdue.

FLEMING: It is definitely becoming more accepted. To the contrary, we find that clients would rather pay a fee for professional advice and services versus buying a product, based on a remuneration model from a product house.

Adams is a certified financial planner and retirement specialist at Chartered Wealth Solutions in Joburg.

Fleming is the executive head of private clients at Consolidated in Cape Town

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