Partnering with a Personal Financial Planner – what to know

In the complex, and sometimes murky world of personal financial planning, as consumers, we all need honest and clear guidance. Many of us have either heard of, or experienced, first hand, poor financial planning advice. 

Many of us can feel let down by this lack of care, service, due diligence and attention. We also don’t know how to deal with this disappointment. In the first instance many of us don’t have the right tools to engage a personal financial planner. Here is a step by step guide that will get you going. 

Let’s first dispel some common myths and misconceptions.

1. Retirement Myths

> My company pension fund [only] will be enough

Think again. Many company retirement funds only contribute in the region of between 8 and 12% of your monthly salary. Depending on your age you may need to be aiming for somewhere between 15 to 30% savings levels. If you never preserved your withdrawal benefits previously and cashed your fund credits out when you resigned then this will compound the situation.

> My expenses will decrease in retirement

Maybe, but your medical expenses will rise dramatically. If you thought that your 30 and 40 something year old children are out of your hair, think again – hard times are falling on your children and some of them are thinking of moving back home…with their children.

> I can’t afford proper financial advice

No, you can. Once you learn how to engage a financial planner you will also be able to learn how to have a discussion about fees for service.

> I am too young to think about retirement planning

From your first pay day you should consider setting aside money towards longer term savings. The younger the better. Compound interest is a miracle worker.

> I am too old to start saving now

Never too old. You can start saving at any stage and continue saving.

> I will only need enough income for 15 years in retirement

Not true. Many of us are living longer in retirement – 20 to 30 years on average. This means longer income needs and ensuring that you meet your expenses in retirement. What you do now will have an impact on the level of income and the duration of the income during retirement.

2. Getting started

Employing a Financial Guide

> When engaging a financial planner for the first time, consider the following;

• Establish an open, up-front, co-operative and honest working relationship.

• Be honest with the planner and ensure that the planner is honest with you. Things cannot be one sided.

• Preferably, look out for the CFP® [CERTIFIED FINANCIAL PLANNER ® professional] designation.

• The CFP® mark stands as a benchmark that indicates that the financial planner exhibits a high level of competency and ethics.

• Shop around for an appropriate financial planner that will suit you.

• To assist you in this process you can go to www.fpi.co.za and source a financial planner that fits your needs.

• Check the financial planner’s FSCA licence status.

• What is the financial planner licenced to sell? What are they not licensed to sell? In terms of FAIS there are certain disclosures that the financial planner must make to you up front. Insist on knowing these.

• Many consumers get caught in the “wham-bam thank you mam” transaction trap where there is no on-going “after sale” service. This is often the transaction based, commission drive. Rather enter into a service contract. 

• Let it be clear what you are being charged, what you will get for those charges, what the financial planner’s functions are as well as understanding your role and responsibility in the relationship.

• The service contract must be measurable. Review it every year. Stipulate what happens if there is under performance. How will you measure the service?

• If the financial planner asks you for your budget, ask for his. Maybe even ask your financial planner for his or her credit score, why not? You want a planner that leads by his or her own example. 

13 questions to ask a financial planner

To assist you in the engagement process here are thirteen questions that are sure to ruffle the feathers;

• Are you an independent financial planner or a tied agent? [there are merits to both, you decide what fits your needs].

• What are your relevant industry qualifications? Explain these to me.

• Are you a registered member of a financial or industry professional body? Tell me about what it means to be a member. Do you adhere to a professional code of ethics?

• Are you licensed with the Financial Services Conduct Authority?

• Is your CPD up to-date? 

• Are you suitably accredited to dispense advice?

• Describe your relevant experience and knowledge. Share your CV with me. 

• Describe your financial planning process, what sets you apart?

• What are you not licensed to sell?

• How are you remunerated? 

• Are you a fee earner or a commission earner? How do you determine the fee that you charge? Show me the science behind how you arrive at what you charge.

• Which service providers do you recommend and why? Which ones don’t you recommend and why?

• Would you be prepared to provide me with five references that I can contact and independently verify your expertise, credentials and service?

Feel free to add your own!

Why appoint a personal financial planner?

Many of us are not equipped to deal with the more complex financial planning transactions. Financial planning transactions can be emotive and complicated. Making the right choice is paramount.

This is where the competent financial guide takes centre stage. There are many instances where we will need the assistance of a financial guide;

• Investment and wealth planning.

• Healthcare and post retirement planning.

• Adequate and appropriate insurance cover.

• Retirement provision.

• Estate planning.

• Understanding policy and underwriting conditions.

• Tax implications and considerations.

These are just a few. Many of these points are inter-linked within a composite financial plan. The trick is to get all of these points, and possibly others, depending on how complex your needs may be, into one cohesive and harmonious working financial plan. 

This is not a one-time activity. Over time our needs, circumstances, goals and objectives will change – our financial plans must be able to change and adapt as required.

3. The financial planning engagement

Financial Planner responsibilities

• Confirm his personal and company details in a CV. Check him or her out on LinkedIn for starters. Does his or her CV and social media tie up? They should.

• Carry out a full needs analysis and risk profile assessment to accurately assess and determine your specific needs.

• Write up a full record of advice and give you a copy. This should be done within 48 hours of any advice meeting before the memory gets hazy.

• Disclose all relevant fees and commissions upfront and agree these with you.

• See the agreed advice and next steps through to its logical conclusion and implementation.

• Repeat where necessary for each subsequent transaction.

• Monitor and review ongoing in line with agreed service level agreement and your unique financial planning needs.

Your responsibilities

• Keep your planner fully informed at all times. Don't keep him or her guessing.

• Insist on clear and relevant information to make a decision on.

• Submit all FICA and FAIS documents on time and complete. Be supportive and participate.

• Don’t abdicate responsibility, ignorance is not an option. Get financially savvy, ask questions. Be fair but be firm and critical. 

• Demand service and back up, enter into a service level agreement.

4. Always be prepared!

• Keep a handle on your budget. This is the one of the most important tools that will ensure that you stay focused and committed.

• Create an emergency fund [3 – 6 months expenses cover]. Things happen, no emergency fund means that you will have to borrow to cover the hard times.

• Keep your debt in check. Debt holds us back. High levels of debt means constrained cash-flow. We cannot save if debt is in the way.

• What are you worth? – keep your Will up to date and relevant. Many of us either do not have a Will or our Wills are not properly constituted.

• Make sure that you are adequately covered. Do you have enough insurance cover in place?

• Don’t keep all your investments in one basket. Diversify as necessary.

• Understand your liquidity needs. 

• Match your investment strategy with your needs and objectives. Understand the impact of time and investment risk.

5. In Closing

This should get you prepared when dealing with a financial planner for the first time or even reviewing your current service provider. If you are already in a “relationship” of sorts put these steps to the test.

What have you got to lose? Nothing, if anything you may expose some inefficiencies and you will see some drastic improvements…plus some street credit and respect of your new found line of questioning and interrogation.

There is a lot to consider when employing a financial guide. Be mindful about how you set yourself up in preparation and then understand the engagement process. Understand your planner’s responsibilities and yours. Don’t settle for second best, demand service, you are paying for it. Ensure that the relationship is not one sided. This is not a one-time activity.

Good luck…keep them honest!

Financial Education is the key to Financial Freedom. Keep yourself financially capable and adopt a healthy attitude to your personal money management.

Nigel Willmott CFP®