Most financial products are purchased through a financial adviser. Your adviser receives a fee for providing you with the advice they give you. Usually the provider of the product you are purchasing pays the adviser commission. For example, if you purchase a Liberty insurance product through an adviser, Liberty will pay the adviser commission.
What this means for you is that you should ensure that you get your money’s worth from your adviser. Like any profession, there are good and bad financial advisers. It is up to you to make sure that you get the best possible advice.
While the best adviser for you is often a personal choice, the first two factors I would consider are:
In South Africa there are increasing requirements for advisers to pass a certain level of exams in order to be allowed to give advice. Previously there were none. There have been a fair amount of advisers who have left the industry because of the exam requirements.
The minimum requirements have been set to ensure that those giving you advice are qualified to do so. However, advisers are able to study beyond the minimum requirements. The most qualified advisers are Certified Financial Planners (they have the letters CFP after their names). This is a fairly tough qualification to gain.
It is important to note that unless the adviser has a fee-based practice, they don’t get paid any extra commission if they are more qualified, so it does not cost you any more to get advice from a more qualified adviser.
While qualifications alone are not the only criteria to judge an adviser, I believe that they are the clearest indicator that your adviser is capable of giving you good advice. An adviser who is qualified is able to demonstrate a certain level of knowledge, ability and work ethic.
- Tied agents and independent advisers
Advisers fall into a myriad of different categories, but the two extremes are independent advisers and tied agents. Independent advisers are allowed to sell you a financial product from any provider they chose, while tied agents are only allowed to sell you products from the provider they are tied to. For example, a Discovery tied agent can only sell you a Discovery product.
In reality there are a wide variety of advisers who fall into categories between the above two extremes. But the point I would like to make only requires us to consider tied agents versus independent advisers.
Tied agents argue that because they have access to assistance from the company they are tied to it makes them more qualified. Also, because they only sell one provider’s product, they argue that their product knowledge is better than an independent adviser who sells a wider variety of products.
However, the problem is that no provider provides the best products for every possible customer. If the best product for you is provided by Competitor A, while Competitor B can only can provide you an average product, visiting even the best tied agent for Competitor B will result in you not getting the best product you could get.
A large part of the advice process is helping you to choose the best provider. This is assistance that a tied agent cannot give. Tied agents usually do sell for companies that have decent products, so it is not the end of the world, but it is definitely something to remember when purchasing cover.
While I place considerable value on the above two points, an adviser must be able to give you advice that you feel comfortable with and understand. It is up to you to make sure that you don’t settle for anything less but the best advice from your adviser.