An investment journey can be likened to going out to sea; in both instances you face unpredictable conditions. How well you stomach these ups and downs and whether you can stay the course depends on how prepared you are and whether you have expert knowledge on your side.
This is the view of Cedrick Pila, Regional manager at Allan Gray who, in light of it being Financial Planning Week, which coincides with World Financial Planning Day on 6 October, says that having a financial adviser is much like going out to sea with a qualified expert.
“Sailors never do it alone: The skilful art of navigation allows them to be guided to their destination and along the way, to either avoid tumultuous weather conditions, or come out of them safely,” says Pila, adding that in many instances, financial advice can even be like a life jacket, helping you stay afloat when things don’t go as planned.
Pila explains that while you may have a plan aligned to your appetite for risk, financial needs and investment goals, it is often difficult to stick to.
“Investors often make knee-jerk reactions in response to market noise – having someone you trust who can hold you accountable to stick to your financial plan can help you avoid these costly mistakes,” says Pila.
He says a recent example of this is looking back at the height of the pandemic when volatility characterised the markets during the first half of 2020.
“Following the market crash many investors moved from volatile higher risk assets like equities, to the safe haven of cash and other lower risk options, but this proved very costly, given that the market recovered by the end of the year.”
Pila says that the right financial adviser can deliver life-changing benefits, like helping you make sense of complicated information and encouraging you to remain committed to your financial goals. Below are Pila’s top three tips to help you find the right financial adviser for your investment journey.
Tip 1: Do your homework
Conducting in-depth research is the cornerstone to choosing the right adviser. Do not shy away from asking probing questions about their qualifications and credentials. Where possible, review their typical client profile and ask for references. Certified financial planners in South Africa are required to be suitably qualified to provide advice and maintain technical competence and fulfil ethical obligations. You can also use the Allan Gray Find an independent financial adviser service or turn to the Financial Planning Institute of Southern Africa (FPI) for help.
Tip 2: Ask the right questions
Take your time to assess whether the adviser’s value proposition and approach aligns with your expectations to make sure that you can work together successfully. Ask specific questions like what their approach to risk profiling looks like, how often they communicate with clients and how they will determine your asset allocation. This will help you determine whether the adviser is the right fit for you.
Tip 3: Understand their payment terms
Some advisers charge a consultation fee, others charge a flat fee, while others charge a percentage of your assets under management and others may receive commissions.
Payment arrangements that are based on commissions per transaction should trigger red flags in your mind because these are most times associated with tied agents, who are incentivised to promote particular funds and products, irrespective of whether they are the very best options to suit your needs. These type of payment arrangements don’t guarantee that, as the client, your best interests are being served and they can lack transparency. By choosing a truly independent adviser, who is not linked to a product provider, you should receive objective advice that is well suited to your needs.
Last words: Trust is key
“A key consideration is trust because this is the foundation of the long-term relationship you will have with your adviser. This is relevant throughout the planning process and journey but is particularly important when the waters get choppy and hard decisions are required to stick to your planning goals and stay the course,” concludes Pila.