The True Cost of Advice
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Financial advice is key to achieving your investment goals. Choosing the right adviser could have a marked impact on the returns you enjoy over years of meticulous saving.
A study by US financial services provider Vanguard found that advised clients earn returns of about 1.5 percentage points a year more than non-advised clients.
“Good advice does cost money, but the opportunity cost of not having a good professional, independent adviser is very expensive and is rarely calculated,” says Barry O’Mahony, a financial adviser at Veritas Wealth.
O’Mahony is a Certified Financial Planner® (CFP) professional, an internationally recognised qualification for financial planners.
The Financial Planning Institute (FPI) is a professional body for financial planners in SA, and the only institution in the country to offer the CFP® certification.
Every year the FPI awards a professional with the accolade of Financial Planner of the Year, which the FPI says is the highest award a financial planner can achieve.
O’Mahony, a former winner of the award, says that engaging a CFP® means the person you are dealing with has a postgraduate diploma in financial planning and is required to adhere to a professional code of ethics and code of conduct.
“The internationally recognised CFP® designation is one of the best-kept secrets in the industry,” he says.
What is a good financial planner?
Financial Planner of Year 2018 Janet Hugo, director of Sterling Private Wealth, says, “It’s essential that you only take advice from a person who is qualified, experienced and has a successful track record, or works with a reputable firm with sound in-house investment and operational strategies.”
Floris Slabbert, director at Ecsponent Financial Services, says a good financial adviser will bring the skills, qualifications, experience and discipline required to offer advice that will “ultimately unlock the best returns from your investments”.
This is done by combining industry knowledge with a cool, collected outside perspective of your unique circumstances.
“The outside perspective on your circumstances – combined with industry knowledge on the effects of tax and estate planning on financial plans – often proves invaluable in constructing the best possible solution to achieve your financial goals,” says André Lindeque, a private-client wealth management consultant at the financial advisory firm GTC.
“A good adviser has the ability to listen, understand and interpret the requirements of their client. Crucially, they should be able to communicate the appropriate plan of action in understandable terms to their clients. They must also have a competent support team, to give clients the necessary assurances and information in the event that their adviser is not available,” adds Lindeque.
Hugo says it is very important for clients to stay engaged in their financial journey. “All clients should stay informed, and question and discuss the advice they receive from their selected adviser. They should take an active part in the decision-making and understand the pros and cons regarding the selection of their adviser,” she says.
What about fees?
O’Mahony says that a key driver in looking for an adviser is understanding how they make their money. “Look for an adviser who makes money on an annual and ongoing basis, and avoid advisers who rely primarily on upfront commissions, as this motivates the wrong behaviour and does not align your interests with your adviser.”
Hugo agrees. “It’s advisable to question fees which include a significant upfront amount which is not commensurate with the value of the advice.”
Hugo believes professional fees are acceptable when a service adds value. Fees may include an annual management fee on an investment portfolio.
Understand how you are being charged, relative to the advice you’re getting and the impact on your investment.
Tied versus independent advisers
A tied adviser has a contract with a specific product provider.
“A tied agent will be most informed and knowledgeable about one range of products,” explains Slabbert, “whereas with an independent adviser, there won’t be targets and commission tied to how much business is written for a company.”
O’Mahony adds: “It’s unlikely that a tied agent would advise you not to use the products offered by his company.”
Independent financial advisers are not tied to a particular product supplier, meaning they can allocate their clients’ funds to the products and providers that are most suitable to their unique set of needs.
Hugo says successful independent advisers have rigorous systems and dedicated staff to evaluate new product developments.
You need to understand how your money is being invested and what the costs are. You must be confident your adviser has your best interests at heart and operates according to the best standards of professionalism.
When searching for the right adviser, O’Mahony offers a pearl of wisdom: “A reputable adviser sells advice, not products.”
By Devlin Brown – Sunday Times 27 January 2019