Why you need a financial plan and a planner who will help you stick to it
Share this article:
By Palesa Thloloe
It’s important to have a comprehensive financial plan and to know what to look for when choosing a financial partner to help you create and implement it.
What is a comprehensive financial plan?
A financial plan is like a road map that shows you where you are, where you want to go, and the best way to get there. Your current financial position reflects your assets and liabilities, and your income and expenses. Where you want to go involves your dreams, your goals, and your aspirations. If, for example, you want to buy an investment property that will give you extra income at some stage in your life, your financial plan should show how you’ll raise funds to buy the property.
Why do you need a comprehensive financial plan?
When I first started as a financial adviser, my coach used to say, “we all have five problems in life that we have to face at some point”. They are: dying too soon, living too long, the loss of income due to an illness or incapacity, inflation, and taxes.
Most life decisions we make every day have an impact on our finances, and most financial decisions we make can be affected by any of these five problems. Deciding to get married and having children will have a financial impact, and your family’s finances can be affected by any of the five problems.
A Certified Financial Planner (CFP) can help you to put together a customised and comprehensive plan by performing a financial needs analysis. This analysis will make certain assumptions about the future, taking into account your current financial resources and potential risk, compare those to your needs or aspirations, factor in inflation, taxes, your time horizon, and your risk ability, and ultimately make a recommendation, which will include financial products that will fit your plan.
How to choose the best financial professional for you
It’s often said that knowledge is power. You need to have a good idea of the difference between a financial adviser and a professional financial planner with the CFP designation. A financial adviser should meet the minimum qualification and experience requirements, and be registered with the Financial Sector Conduct Authority. He or she should also achieve a minimum of 18 Continuing Professional Development (CPD) points per year, and be registered for the products they recommend.
A CFP professional, on the other hand, has been awarded a formal designation by the Financial Planning Institute after passing rigorous board exams. To write the exams, the individual needs to hold an NQF8 qualification in a recognised field and meet the required number of years of experience in the profession. This is over and above the requirements for a financial adviser, and the CPD requirements are higher, at 35 CPD points per year. A CFP professional is therefore trained to handle more complex financial portfolios, and this training is ongoing, because legislation changes all the time, and financial plans need to be updated.
This column, by Palesa Thloloe, co-founder and wealth manager at Imvelo Wealth Solution, first appeared in the October 2021 edition of IOL MONEY digital magazine, available free here.