When you plan for retirement, or make any type of financial plan, is the person you consult a financial adviser, a financial planner or a broker?
The discussion about titles has been in the spotlight recently as part of a debate on the changes to the Financial Advisory and Intermediary Services (FAIS) Act through the Retail Distribution Review (RDR).
As it stands today, you would be hard-pressed to distinguish between a qualified adviser who offers professional advice and an adviser who sells you a product from a predetermined range.
The RDR aims to help clear this up by defining advisers according to their relationship with the supplier of the products that they offer. So in future you will be able to tell if the adviser is an agent for a specific product supplier and if that means they are restricted in the kind of advice they can give.
The proposed rules narrow the titles down to two types of advisers – a product supplier agent (PSA) and a registered financial adviser (RFA).
These rules say that both a PSA and an RFA will have to identify themselves to clients. For instance: “I am So-and-so, I am a PSA authorised to provide advice on the financial products of ABC Group,” or “I am So-and-so, I am an RFA authorised to provide advice on the financial products and services of a range of product suppliers.”
Apart from forcing advisers to communicate their relationships with product suppliers beforehand, the proposed changes to the FAIS Act include very strict conduct rules and rules about when an adviser may call themselves independent.
It also prohibits anyone from working as both a PSA and an RFA.
These rules stipulate, for instance, that your adviser cannot call him or herself independent if he or she directly or indirectly receives or is eligible for any financial interest from a product supplier whose products he or she sells, or if he or she owns a product provider, or his or her practice is owned by a product provider.
This distinction has been welcomed by organisations such as the South African Independent Financial Adviser Association, which has been lobbying for some time to elevate the status of independent advisers.
One of the desired outcomes of the RDR reforms is to enhance standards of professionalism in financial advice and to build consumer confidence and trust.
Ask about certification
To this end the Financial Sector Conduct Authority confirmed its intent to acknowledge the professional status of qualified financial planners by reserving the use of the designation “financial planner” for those with a formal professional designation in financial planning.
People designated as a Certified Financial PlannerT professional have to meet strict standards that include academic measures, ethics, experience and continuous professional education as set by the international Financial Planning Standards Board, and be members, in good standing, of the Financial Planning Institute of SA (FPI), the only recognised professional body for financial advisers in SA. (PSAs and RFAs can be awarded the CFPT designation.)
So, where does it leave you? For one, you can start by asking your financial planner if they would in future qualify as a PSA or an RFA.
Also ask if they have the CFPT designation and if they are independent. Ask your adviser about the scope and type of advice they are qualified to, and capable of, giving.
Remember, financial advice is like any other professional service. You get what you pay for, and free advice is often worth very, very little.
• Fourie, a former winner of the FPI’s financial planner of the year award, is CEO of Ascor Independent Wealth Managers
(This article originally appeared on BusinessDay)