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My latest Leadership Magazine column is on page 52 and 53.
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At the time I knew very little about retirement annuities, pension funds and life insurances, except that it was rather important to get something in place sooner rather than later. Mr Smooth with his pink tie was recommended by an ex-boyfriend, two massive red flags in one, but hey you don’t know what you don’t know, and I was ignorant enough to think that he had my best interest at heart.
Year after year we would meet annually, go through my documents, and he would motivate some changes and new products to avoid certain doom and gloom; this ultimately meant quite a steep annual increase in my monthly payments. We’d chit and chat for a couple of hours and the ink would barely be dry on all the paperwork and he would be out of there.
During the rest of the year there was absolutely no sight or sound from him, absolutely no financial advice and any financial questions that I had needed to be channelled via his group of ladies in his office who would then ‘deal’ with me. This felt like it defeated the purpose of investing in someone’s services to soundboard financial aspects along my personal and professional journey; something especially crucial when you run your own business.
The impasse came at the end of last year, when I was again contacted by his office for our annual meeting.
A couple of things dawned on me, why was I only hearing from him once a year? Why was I paying more for admin fees on one of my investments versus the actual interest? Why did he still not have an inkling as to what I actually do for a living? He has absolutely no respect for the work that we do. I am convinced that if you were to ask him today what it is that I do, he would tell you that it is public relations. Be that as it may.
The mission was clear, find a new financial advisor, and fast! Easier said than done.
Finding a new financial advisor is rather daunting. I met with many but just did not feel the ‘fit’. Enter Carla Fiford from Adviceworx. I met her through a mutual friend Cynthia Schoeman, Founder and Managing Director of Ethics Monitor. I am very much of the opinion that like attracts like, and automatically felt an infinity towards Carla.
Carla and I sat down and went through absolutely everything. One of the things that we picked up was that my will was last updated in 2009! I take responsibility for that one, I should have kept better tabs on it. I do however feel that if Mr Smooth who had the supposed real interest in my affairs, he should have nudged me to update it on a more regular basis. There was also quite a few other questionable recommendations made by Mr Smooth that I had blindly followed.
I really want to prevent other people the pain of having to deal with a Mr Smooth; I have asked Carla a few questions, in the hope that it will help someone avoid making the mistakes I made.
What exactly is it that you do as a financial advisor?
Partner with a client to build a financial lifetime.
Why is it important to have a financial advisor and not do your financial management yourself?
There are a few ways to answer this; firstly, a good partnership and financial expertise alleviates anxiety and uncertainty for the client. Managing one’s finances is one of the principle pillars to long-term security, it allows you to feel reassured that your family is prepared and protected for the future. Unless you have a high level of expertise, access to current research and an active ongoing interest regarding investments, it is highly unlikely that an amateur will achieve good long-term returns especially in the current world economy
The empirical answer however, centres on research indicating that there is definite value in working with financial advisors. For example, according to The Vanguard Group (the largest provider of mutual funds and the second-largest provider of exchange-traded funds in the world), advisors can potentially add approximately 3% in net returns using the Vanguard Advisor’s Alpha framework (this is a model indicating the benefits of relation-orientated service). This 3% is primarily driven by two core factors. The first is developing and helping the client stick to a plan. This entails structuring a holistic plan around the financial goals and level of risk that the client is comfortable with. The second is ensuring the client's products and fund selections are correct. Most people think the benefit of an advisor lies solely within their investment recommendations, however investment recommendations on product choice, especially those with tax implications, also have an enormous influence on a client’s final outcome.
What are three things you should expect from your financial advisor?
Relatability, trust and partnership. However, I think before we look at what you should expect from an advisor, let’s look at the non-negotiables which are twofold. Firstly, can you relate to the person as a human being? If you can’t, how are you going to convey all the emotional concerns that are intimately tied up in long-term financial planning? Secondly, do you trust them implicitly to act in your very best interests?
As for expectations, the list is a long one. The three most important ones are: firstly, integrity, which includes appropriate advice, confidentiality, and respect.
Secondly, professionalism. Is the advisor skilled and knowledgeable? Do they use the latest tools and technology available to give one an outcomes-based solution that meets individual needs? We provide our clients with an individualised Lifestyle Wealth Design Plan.
Thirdly, the concept of team. Is the advisor acting ‘alone’ providing ‘their’ solutions (favourite funds) or are they part of a larger team of para planners, investment specialists, researchers and portfolio managers who work together to provide a solution?
I must however mention a little caveat which a client should be aware of: does your financial advisor have succession planning? In other words, should an unforeseen event occur and your chosen financial advisor is no longer available, what would happen to the clients’ information history? Before you engage with a new planner, ask the planner, “do you have a successor? Are all your records protected? For example, are phone calls, emails, WhatsApps, balance sheets, income statements, life goals, etc. all captured on a central secure data system to ensure that information is not lost and the client won’t be left unattended?”
When you are looking for a financial advisor, what should you be looking for and what questions should you ask the person to help you make a decision?
On an individual level, find out what the financial advisor’s level of training is. What qualifications do they have? Are they certified as a financial planner? Does the advisor communicate well? Do they understand long-term financial needs? What is their financial compensation?
With regard to their financial institution: Does the company provide collaboration, partnership and expertise? How has the institution performed over time? Do they provide up to date technological support?
What are some of the things you wish your clients knew or did differently?
Clients are susceptible to the volatility and vagaries of the market and tend to want to change their asset allocation when markets take a plunge; research proves that market timing only makes up 2% of a client return over a lifetime. However, sticking to your plan works out far better for you in the long run.
How often should you update your will?
Wills should be updated as soon as there is a major event in one’s life. For example, the birth of a child, the purchase of a house, getting married or co-habiting, inheriting or the loss of a partner. The Master of the Court prefers individual wills, but will accept joint wills, and does not like individuals or family members to be appointed as Executors. However, should nothing change, it is a good idea to review your will every two years.
How often should you be in contact with each other?
That depends on the client’s change of circumstance and the type of investment. I recommend a bi-annual review, where we look at what has changed in the client’s life, the state of the economy and the markets and how their particular Integrated Lifestyle Wealth Plan is tracking. Other clients might prefer to meet up quarterly, but it is very much driven by the client.
Are there some non-negotiable / deal breakers to be aware of before you select a financial planner? What are some of the basics to be aware of?
I think it is imperative that the advisor you choose be totally independent and be able to provide ongoing financial advice and be able to review the entire market as opposed to the ‘tied agents’ or financial advisors that work for a company. I call it perverse inventive where advisors are incentivised to sell products based on the commission they receive. This practice reduces any independence and impartiality in addressing the client’s needs.
What is the one thing that people get wrong about the work you do?
In some circles, people equate a financial planner with insurance salesmen, the chap who went door to door selling life insurance for commission, as opposed to a professional financial planner. Financial planners are qualified trained professionals that continually update their skills and knowledge and who make a positive difference in a client’s life.
What do you think is going to be the biggest change over the next five years?
The industry is going to be influenced by two things: the first is the finalisation of the new legislation, The Retails Distribution Review (RDR) where one of the key issues will be the clear distinction between independent and non-independent advisors. There will also be a limitation on charging structures and improved transparency of all costs the client is incurring. There is a strong correlation between RDR and ‘Treating Customers Fairly’, an initiative which will be promoted by the new legislation and which will encourage competent advisors who focusses on outcomes.
The second big influence in the industry is technology with the increasing accessibility to information and products online, and the availability of online financial planning tools.
Cutting edge technology is providing top end advisors with algorithm-built modelling tools that take into account tax rates, inflation and average expected returns of different asset classes. These tools are hugely beneficial in building individual specific plans for clients for the long term or, as I like to call it, partnering to build a Financial Lifetime.
To continue the reputation management discussion, visit www.reputationmatters.co.za or call +27 (0)11 317 3861. We are also on Facebook www.facebook.com/yourreputationmatters and Twitter @ReputationIsKey
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