THE ULTIMATE QUESTIONS

The way in which this question is answered is a great start!

It is imperative that this question is answered!

You need to know how long the adviser has been in practice and the extent of his qualifications or whether he or she is working under supervision. For example, the Certified Financial Planner (CFP®) certification is internationally recognised, and may only be conferred on someone with a relevant university degree, a Postgraduate Diploma in Financial Planning and several years’ experience. The world first SAIFAA Certified Post Retirement Professional (CPRP®) Registered or Graduate certification is a valuable proof of putting the Client and Families first!

A professional adviser will constantly keep up to date with developments in the industry and legislative changes. The adviser may be required by the professional body to which he or she belongs to earn ongoing CPD (continuous professional development) points.

This is essential. Your adviser must be registered and have a valid financial services provider (FSP) licence, as required by the Financial Advice and Intermediary Services (FAIS) Act. There are different levels of licence according to the types of products an FSP can give advice on. The Act also contains a code of conduct, to which FSPs must adhere.

Bodies include SAIFAA, the Financial Planning Institute (FPI), the Financial Intermediaries Association (FIA) and the Institute of Retirement Funds Africa (IRFA).

Some practices are more specialised than others. Make sure you fully comprehend exactly what the full range of services is that you may wish to engage.

A Product Supplier Agent (PSA) will, generally, represent only his or her employer’s products, although the employer’s investment platform is likely to carry a wide range of underlying investments from an array of asset managers. An Independent Financial Advisor (IFA) should be able to offer products from a range of suppliers. Their calling card and letterhead will be a good guideline.

Smorenburg says a service level agreement should be easy to understand and fully explained. You may also require the adviser to invest on your behalf, and this would need an investment strategy agreement mandate signed by you.

The adviser may receive a commission from the product provider on the products you buy. Otherwise, he or she may charge a fee based on a percentage of your assets, or a time-related fee according to an hourly rate. This important aspect of your long term contractual relationship needs to be clearly explained and understood.

In the case of a PSA, this would be the product supplier. An IFA may be self-employed or work for an advisory practice. Again this needs to be explained.

Smorenburg says the adviser may be a shareholder or a subscriber in a third-party company providing an investment service (DFM) to the practice, from which he or she may receive dividends. The arrangement may also result in an additional layer of fees. There may be benefits to you – for example, the adviser may be aligned with a discretionary fund manager (DFM) to invest on your behalf at a low institutional rate instead of the higher retail rate. But these business relationships must be fully disclosed so that you can be the judge of whether or not they conflict with your interests.

It is a requirement of the FAIS Act that all costs – which would include investment costs, administration costs, commissions and adviser’s fees, as well as any possible penalty charges on the early termination of contractual endowment policies and retirement annuities – are fully disclosed to you. If the adviser is aligned with a DFM or using a third-party investment platform such as Glacier by Sanlam, there may be an extra layer of costs. All early termination costs/penalties need to be explained and recorded!

Again, this is a requirement of the FAIS Act. Product supplier agents would have backing of their employer organisation, which would be responsible for such assessments. IFAs would need to do such work on their own, particularly on “alternative” types of investments that may carry higher risks. The Ecsponent case is an example of failure in this regard on the part of advisers.

Smorenburg says IFAs often don’t give enough attention to succession planning. Your adviser should be able to tell you how you will be served if he or she is no longer there to do it or if the business changes hands.

References from other clients are as essential as employer references from a prospective employee.

The protection you have in the case of loss owing to negligence is dependent on the adviser’s professional indemnity cover. You need to ensure that the adviser has such cover in place.

Investment strategy and asset allocation should vary from client to client depending on each client’s risk profile and investment horizon. Many IFAs use excellent risk profile tools available from the world’s most academically-validated psychometric risk tolerance assessment process such as FinaMetrica/PlanPlus.

Large advisory practices may have internal compliance officers, who ensure that the practice is adhering to regulations. However, this function is increasingly outsourced to external compliance firms. Knowing that your IFA runs a well-structured practice including suitable compliance protocols is important.

These are the outcomes on which current reforms in financial services legislation are based. All Advisors are required to be able to prove that they endorse the TCF principles. Your Adviser should not only be aware of them but actively promoting them and putting them into practice, Smorenburg says.

Smorenburg says an adviser who has your best interests at heart will look at more than just your finances, with a holistic approach to you and your family’s well-being. For example, if you are close to or in retirement, an IFA who has completed SAIFAA’s Certified Post Retirement Professional (CPRP®) programme would be able to guide you on lifestyle issues such as post-retirement accommodation and your mental and physical health in retirement.