Why use the services of a financial planner?
It is often the case that those who are involved in the day to day management of the money matters of others are the same people who neglect their own financial affairs. And, while no-one would recommend self-diagnosis for illness (beyond an ordinary sore throat or a blocked nose) very few people realise the importance of consulting an expert financial planner in the management of their financial affairs. Partly this is because blame of some unscrupulous ‘product-pushers’ particularly in the pre-FAIS era, but also partly because many people think that they have the situation under control by belonging to a pension fund or owning a life policy.
However, effective financial planning is about enabling people to reach their goals. Whether those goals entail enjoying a carefree retirement, providing a good education for one’s children or saving for a deposit on a new car, they are individual life goals and are thus important enough to warrant expert advice. A qualified financial planner will conduct a proper needs analysis for you based on your goals. In fact, the concept of a needs analysis is central to the FAIS legislation that regulates the industry. In its most basic form, a needs analysis entails looking at what your need is against what you already have in order to determine whether anything is missing.
How do I find a financial planner?
We read in the news daily of collapsing pyramid schemes and other fraudulent activities where investors lose their life savings. Invariably the investors’ response is: But I trusted him/her! The big question is how do you then find a trusted financial adviser?
In South Africa the professional body for financial planners is the Financial Planning Institute (FPI). They award a designation called Certified Financial Planner® to advisers who meet all four requirements set for this designation:
Education – having passed the Post Graduate Diploma in Financial Planning.
Exam – having passed the FPI’s Board Examination where the provision of advice is assessed in detail.
Ethics – subscribing to the FPI’s Code of Ethics, which is aimed at protecting clients and professionalising the industry.
Experience – having at least 3 years’ experience in financial planning.
There are more than 3 000 Certified Financial Planners in South Africa and if you decide to deal with one of them, you can rest assured that they are qualified and also that the FPI will take action against them should they act in contravention of the Code of Ethics.
What can I expect from my financial planner?
The financial planning process, advocated by the FPI, consists of the following six steps:
Establish a relationship – during this step you and the financial planner need to get to know each other – it is the start of a trust relationship. You need to agree formally on what your respective expectations of the process are, as well as the remuneration that will be involved.
Gather information – the financial planner will gather the relevant information from you. Depending on your needs, this may include a list of assets (including pension fund details) and liabilities, income and expenditure, goals, etc. It is important to provide as much information as possible as the planner’s recommendations will depend on his/her ability to form a holistic view of your affairs.
Analyse – during this step the planner will analyse your situation based on the information received. This might involve calculations (e.g. tax) in order to determine possible shortfalls.
Make recommendations – the financial planner will make recommendations on what you should do to work towards meeting your goals. A general misconception is that this will always entail purchasing a myriad of additional financial products, but it could also simply entail rearranging your affairs in order to maximise the amount of money that you spend on wealth creation/protection. He/she will also ensure that you understand the benefits of the recommendations and that you are placed in a position where you can make an informed decision.
Implement – once you have decided what you would like to do, the financial planner may assist you with implementation (i.e. making an investment). You may need a service/product that the planner can provide or s/he will refer you to an expert in a particular field to assist (e.g. a medical schemes broker).
Review – you need to agree with the financial planner on how often your portfolio should be reviewed. Generally speaking an annual review of your financial plan is sufficient, but it is important that you contact your financial planner when your circumstances change, e.g. if you get divorced/retrenched, or when a new baby is born.
Another misconception in the market is that financial planning is only for those who have lots of money and assets. Nothing can be further from the truth. It is precisely us ordinary people who earn a salary and have a pension fund, who need to do careful financial planning to ensure that we can live the lives we dream of!
So before you decide that none of this applies to you, give an honest answer to the following questions:
Do you have a valid and up-to-date will?
Do you have short-term insurance (car/house and other assets) and medical cover?
Are you sure that all your debts will be covered in the event of your death so that your family can stay on in your house?
How will you earn income if you are permanently disabled today? Who will look after you?
Do you know how much income your current pension fund will provide after your retirement? Can you survive on this amount?
Do you have a plan for meeting that ultimate goal in your life?
In her book Gone with the Wind (1936) Margaret Mitchell remarked, “Death, taxes and childbirth! There’s never any convenient time for any of them”.
Take some time this month to review your financial affairs to ensure that they support your dreams and hopes for this life!