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RAND AND SENSE: 8 questions for your financial planner

By Eric Streso Time of article published Mar 18, 2019

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Mismanaging money can be devastating to your financial status and your future. Financial planners offer a holistic approach to your money matters that will see long-term financial stability and the means to meet your long-term goals.

However, seeking out a financial planner to manage your wealth can be a daunting task. When it comes to making money decisions, working with a credible professional that you can trust should be top of mind.

Here are eight questions you should be asking your financial planner:

1. What qualifications and experience do you have?

You should always deal with an adviser who is an accredited Certified Financial Planner (CFP). Why? Because they have completed rigorous training in all aspects of the industry and have written a board exam similar to the board exams in other professions. These advisers have training in investment management, estate planning, tax planning, among other things. It is worth your while finding such a qualified and experienced professional.

2. How do I pay you for your services?

This is an important question, because an adviser that charges an upfront commission or ongoing commission or both will be charging you a percentage of your investments. You need to check that the charge is within the legal limits, and ensure your investments are going to legitimate funds. It is imperative to be aware of any costs that may affect your returns. An independent financial adviser (IFA) should properly disclose his or her value-add with the fees taken. A good IFA will usually have a standard rate. Paying such a fee for a good adviser is likely to reward you in the long run. If your investments do not match your needs and you have to fix portfolios, it can be costly and time-consuming.

3. What strategic input can you provide?

An experienced IFA will do proper scenario planning and take you on a journey into the future so that you have full understanding of the possible returns and risks. Execution without strategy is futile. A professional and experienced adviser should include these prospective scenarios in their proposals.

4. What factors will you consider when deciding where to invest?

A professional adviser will look at the following:

* Your age and investment horizon: It is a fact that the longer you remain in the market, the lower your investment risk. It’s not so much about your age, but more on how long you plan to stay invested.

* Your risk tolerance: What do you perceive as risk? Is it loss of capital, loss of yield, not keeping up with inflation? There are many factors that determine the risk of an investment. Therefore, your adviser will take assessment of your entire wealth portfolio, including money or assets that he or she does not manage.

* Your personal goals: This is personal to you, and factors mostly revolve around your present lifestyle and the standard of retirement you want to enjoy. It is not always possible to have both. If you don’t save enough to fund your goals, disappointment is on the horizon. This is where the real risk shows itself; investors may take chances on equities, cryptocurrencies, property, or business investments to try to fund the shortfall.

5. What does inflation have to do with my investment decisions?

Inflation is not always the government-quoted number (currently about 5%) to investors. Most investors who pay school fees, buy meat, drive a car, and own a property will have an inflation rate of closer to 10%. This means that your money loses value every year at a rate of 10%. If you add investment fees of 3% a year, for example, you need a total return of at least 13% a year to keep pace.

6. What does asset allocation mean?

You can only fully understand risk if you understand the different asset classes, and the risks inherent to each class. Simply put, it is your investment split across equities (shares), cash, and bonds.

7. What products will my money be invested in?

Your money may be invested in a fixed investment product with tax benefits with a life assurance and/or an investment company, or on a direct investment platform. Your adviser may also suggest that you consider a trust for estate duty and tax purposes.

8. What happens to my investments when I die?

With some exceptions, such as retirement funds and endowment policies, assets in your name revert to your estate and are subject to estate duty. However, your adviser can discuss estate planning with you, and use tools such as trusts to protect your assets on your death and take care of your heirs and beneficiaries.

Eric Streso holds two law degrees, an international MBA in financial services, and is a CFP. He is an admitted advocate to the North Gauteng High Court and runs his own private practice.


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