Do I need a financial advisor?
Whether you are investing in the stock exchange, saving for retirement or just need general financial advice, chances are you will use a financial advisor at some stage in your life. The difference between good and bad financial decisions can literally run into the millions over one's life, so getting the right advice is crucial.
Although the Financial Advisory and Intermediary Services Act (FAIS) forbids those without the right qualification calling themselves financial advisors, many chancers still do so. Therefore, when you choose a financial planner, insist on a proof of qualification. A certified financial planner licence is a good start.
FAIS states that financial planners' qualifications must be visible in their office, so it may be a good idea to pay their offices a visit. It may seem like an arrogant request to verify a qualification, but remember that you are trying to build a lifelong relationship with a planner, so the foundations have to be solid. The FSB can confirm an advisor's credentials and whether they are licensed to sell a particular product.
When first meeting with a financial advisor, ask as many questions as possible and do not be afraid of admitting what you don't know. It is your hard-earned money and your financial advisor is paid a portion of that to help educate you. Asking questions also helps you to gauge the intentions of the advisor. Are they really listening to your needs or do they already have a product in mind that they are going to push at all costs?
It is important to keep in mind that the purpose of a financial advisor is to make you rich, not the other way around. Therefore, advice that seems cheap may in fact be costly in the long run. Hourly rates from a financial planner may seem steep and therefore many opt for advisors who earn a commission.
The problem with this is that commissions are paid from your investment, and are likely to amount to much more than an hourly rate. In addition, when a financial planner works on a commission structure, they are more likely to push products that may not be in your best interest to gain their commission. A financial advisor who does not earn a commission is often free to advise on a wider range of products, while those who do are often affiliated to one investment house.
This does not mean all financial advisors who earn a commission are a bad choice, but it is up to the investor to understand exactly what is being paid for and what is given in return.
Whatever the investment choice, it is the job of the financial advisor to break it down and explain it in plain language. The golden rule is that no one should invest in a product that they don't understand or are not comfortable with.
If the explanation of an investment from the advisor is vague or hidden behind a mountain of jargon, it may be time to look for a different investment - and advisor. While many investors are frustrated with the sideways movement of the markets in recent times, this is a long-term game and there are no short cuts to success. If an investment promises returns way in excess of inflation, it can only point to significant risk, and one would certainly not take one's retirement money to the casino.
The final step in choosing a financial planner is to gauge how prepared they are to commit to a lifelong relationship. Ensure they are not just there for the initial commissions, but ready to take responsibilities on board. This means they should tell you how often you will see each other to ensure your long-term investment strategy is still on course to achieve the targets you set.
Considering the fees associated with financial advice, many ask why they should not just invest for retirement by themselves. This can be done, but one would need time to study the investment choice and exercise the self-control not to invest in riskier opportunities. Investing a small amount to learn how the stock market works is not a bad idea, but in the long term, the value of sound financial advice cannot be underestimated.