ALL professionals that we consult with charge fees for their services, whether it is a doctor, a lawyer, an accountant or even a mechanic. And often, the better qualified the professional is, the higher the charges.
But when it comes to paying for our financial advice, the haggling often begins. Needless to say, when the bargaining begins, one often does not stop to consider the value that a financial adviser adds to one' s portfolio.
When choosing your adviser, be wary of trying to place too much emphasis on the commissions and costs structure. The minimal costs paid by the investor to a good adviser will be covered many times over upon receipt of excellent investment advice. This commission charge pales into insignificance compared with the growth and stability of your investments. Commissions payable vary from product to product, but all insurance companies have a stipulated recommendation of the maximum charge.
The financial adviser can choose to charge a client anything between nil and the maximum rate laid down by the insurance companies. For example, if the maximum rate is 3percent, the financial adviser, depending on his relationship with a client and the amount of the investment, can reduce this rate as low as 1percent to 1,5percent. Naturally, the larger the amount to be invested, the more room there is for negotiation.
Legislation now requires advisers to disclose commissions to be earned on all investments made on your behalf.
When larger amounts are invested, a financial adviser has more negotiating power with the insurance company to reduce its rates and charges on behalf of the client. Many clients may try to reduce their costs by approaching the insurance companies directly, in the misapprehension that they will save the commission payable to the intermediary. But insurance companies in most cases charge the exact amount that the client would have had to pay the intermediary, without having the additional services offered by the financial adviser.
There are a number of factors other than costs that you need to take into account when deciding who you should choose to look after your estate, tax, investment and retirement planning. The licensing process under the Fais Act provides three different levels of licence.
This article refers to level three, which gives the adviser the right to advise on all aspects of your financial wellbeing, as opposed to levels one and two, which are limited to funeral, life and disability cover advice as well as certain limited guaranteed products.
Like any professional, your financial adviser should be innovative, energetic and enthusiastic and instil in you some confidence in his abilities. You need to be assured that he has your long-term financial health at heart and that he will be there to look after your interests for many years to come.
l Bryan Hirsch is a director of Pioneer Financial Planning. Visit www.pioneerfinancialplanning.co.za