A financial adviser is a professional who is paid to share advice on how best to manage your finances.
Talking to an adviser can help you identify your long-term goals and build a solid financial plan to help you achieve them. The type of adviser you need depends on your goals, which will help determine how to best manage your money.
The different types of financial advisers
There are a variety of different financial advisers available in South Africa, all of whom specialise in a particular aspect of financial planning, some of which include:
Investment advisers
An investment adviser, also known as a stockbroker, is an individual or business that is licensed by the Financial Sector Conduct Authority (FSCA) to offer investment advice to clients and manage their investment portfolios.
It’s always wise to verify that an investment adviser is registered and licensed through the FCSA before soliciting their advice.
Financial planners
Financial planners create unique financial plans for their clients to help them reach their short and long-term wealth goals. Their services include financial planning, risk management, tax planning, retirement planning and estate planning.
For a financial planner to legally practise in South Africa, they must hold a valid FSP licence.
Portfolio, investment and asset managers
Despite their unique names, portfolio managers, investment managers and asset managers all do the same thing – they directly manage their clients’ investment portfolios.
They can also execute trades on behalf of clients through the selling and purchasing of assets. No matter their title, a portfolio, asset, or investment manager needs an FSCA licence to legally manage investment portfolios.
Wealth managers
Wealth managers tend to take on high net-worth, wealthy families and individuals as clients, offering them tailored, in-depth financial planning services and investment advice.
Their services include insurance advice, estate planning, tax management and assistance, and retirement planning. Many wealth managers only take on clients with a minimum net worth, but this amount can vary according to each manager.
Insurance brokers
An insurance broker is an individual or business that represents and sources insurance policies for their clients. They undertake research on different insurance policies and compare their terms, conditions, benefits and pricing to present to clients with recommendations. Insurance brokers are licensed by the FSCA in South Africa.
Do you need financial advice?
You don’t need to have a certain net worth or be of a certain age to talk to a financial adviser about your financial health or future. However, it can be tricky to determine whether you need the professional advice of a financial adviser.
While there is no set of conditions that you need to tick off to talk to an adviser, there are certain situations that may warrant the professional advice of a financial adviser or planner, including:
1. If you have no investments or don’t know how to invest:
Keeping your money within low-interest accounts will prevent the value of your savings from increasing by outpacing inflation. Unless you earn an extremely high monthly income, investing your money is the only way to increase your net worth over time and have sufficient money to retire one day.
2. If you have investments, but they are decreasing in value:
Investments can sometimes take a knock in value due to market fluctuations, but overall your investments should ultimately increase your net worth. If your investments are losing you money, then it’s a good idea to talk to a financial adviser as soon as possible to determine what’s going wrong and how you can reverse it.
3. If you don’t have an existing estate plan:
An estate plan includes:
- financial planning
- health planning
- business and income tax planning
- offshore and retirement planning
- property and real estate planning
It’s important to have an estate plan in place, so your assets are handled according to how you want them to be structured after you pass on (such as family inheriting them, etc.).
If you’re feeling unsure, overwhelmed or stressed about your financial situation, talk to a financial adviser. You can also talk to an adviser when you’re feeling financially secure but want to ensure you’re still making the right decisions.
How to choose a financial adviser
Choosing the right financial adviser depends on your unique circumstances and requirements.
First, ask yourself: Which aspects of my financial life do I need help with?
This will depend on where you are in your life and career.
You might need comprehensive financial planning or just limited investment advice. Not all financial advisers offer the same services, so be sure you know what you’re looking for before committing to an adviser.
Next, be sure to know the difference between financial advisers.
There are two primary kinds of financial advisers: fiduciary and non-fiduciary.
Fiduciary financial adviser
A fiduciary financial adviser must put your best interests above anything else. They can collect fees, rates or commissions from the sale of any investment they sell to you. Typically, they operate on a fixed, flat fee that they charge you monthly or annually.
Non-fiduciary financial adviser
A non-fiduciary financial adviser is often employed by institutions that incentivise them to sell investment products or services by paying them a commission for each sale. They’re only required to recommend investment decisions that meet the basic benchmark of your needs.
Conclusion
There’s a financial adviser for everyone, but be sure you’re hiring the right person before making any solid commitments. Remember to consider your needs before committing to a financial adviser to ensure you complement each other well.
Commspace integrates with the leading broker practice management systems in South Africa. Speak to us about integration with your client database, CRM or accounting package.
