Five steps to get the best value out of your financial adviser – but do you need one?

The Citizen

8 hours ago

People must first understand what a financial adviser does and how they can benefit from their services
Not everyone struggles financially because they earn too little; sometimes it is due to poor money management. Others simply need guidance to reach their goals, which is where a financial adviser can help.
However, Adrian Hope-Bailie, CEO of fintech investment platform Fynbos Money, says most people do not need a financial adviser to get started on investing.
'If you are just beginning your investment journey, building up an emergency fund and opening a tax-free savings account (TFSA) is a great place to start, and you can do that independently.'
He believes that people must first understand what a financial adviser does and how they can benefit from their services. 'For any partnership to work, it is best to know clearly what you are both getting out of the relationship before you commit.'
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Hope-Bailie shares five tips to get the best value out of your financial advisers:
1. Start with a plan
He says the most important thing an individual must walk away with from any adviser is a clear, written financial plan.
'Some advisers offer planning for free in exchange for the opportunity to sell you products later. That 'free' advice can lead to high-fee, commission-laden products that do not serve your long-term interests,' he warns.
Hope-Bailie recommends paying a once-off, hourly, or project-based fee for the planning process.
'This gives you control over the advice process. If you later decide to implement the plan with that adviser, you can negotiate a better fee because you have already paid them for the upfront work.
'Even if you don't implement the plan with the adviser, any advice should be documented in writing – ideally via a formal Record of Advice (RoA).'
2. Shop around thoughtfully
He adds that it is important to research different advisers before selecting one.
'Advisers have different pricing structures and different focus areas. Some charge flat-fees per month, and others charge based on the tasks they perform or based on a percentage of your assets.
'He suggests looking for:
A Certified Financial Planner designation via the FPI;
A valid FSP licence number and RE5 exam;
A clearly disclosed service and fee structure.
Hope-Bailie says individuals must ask if the adviser is independent or tied to a specific provider.
'Independence means they can offer a broader range of solutions as they are not obliged to offer you products from their employer.'
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3. Understand and negotiate the fees
'When comparing investment fees you should always ask for an estimated annual cost (EAC), which breaks down all fees into a format that allows you to compare apples with apples,' he adds.
But cheaper is not always better. If there is a small ongoing fee that takes a percentage of one's investments away indefinitely, it will end up costing one a lot more than a larger upfront fee.
'If you have engaged a reputable professional planner, they deserve to be paid fairly, just make sure you have full visibility into how they're making their money so that you're confident that the relationship is a win-win.'
4. Separate planning, insurance and investments
He says it is not always best to bundle insurance and investment services together.
'Advisers may earn a very small percentage on investment products they sign you up to, especially if you're just starting out – but they can make a lot more from selling you insurance products. This creates a hidden conflict of interest.'
Hope-Bailie suggests getting a full disclosure on insurance and investment, fees and commissions separately to improve transparency.
'You may end up paying slightly more for planning or investment advice if you don't also buy insurance, but you'll likely save on insurance premiums if they aren't subsidising your advice – most importantly, you'll know exactly who's earning what and why.'
5. Set goals for your adviser
He believes that ongoing adviser relationships need to include measurable expectations on both sides.
'Your financial plan should be reviewed at least annually, or any time there's a major change in your life.'
Hope-Bailie recommends setting out when and how you'll meet, what progress looks like, and how success will be measured.
'You can ask your adviser to draft an investment policy statement (IPS) and a service level agreement (SLA) that outlines these terms. If you have an adviser who has not proactively contacted you for over a year, you are not getting the level of service you should expect.'
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