How do I know my advisor makes the best decisions for me?

-By Michelle le Roux

 

Let’s play a game. I have R10 000 000 that I would like to invest. I don’t know much about the investment world, but I want the best possible return on my funds. Yet I’m worried because stories of scams, dishonest people and fake news are a real and daily occurrence.

Further to this, markets have not performed well over the last three years, investors are feeling deflated, and surveys show that confidence in the financial planning industry now ranks in some of the lowest ranges.

How do I know whom to trust for advice?

Building the basic framework

As Certified Financial Planners (CFP®), we spend years studying, doing our articles, and gaining experience in our fields of expertise. By the time we are in a position to give financial advice to a client, we have convinced our regulators, our compliance officers and are confident ourselves, that we are fit to make investment recommendations.

But how do we convince the client of that? That they can trust us to give sound financial advice.

Qualifications and great track-records go a long way, but what happens behind the scenes – in the mind of the advisor? Specifically, how do we at Foundation Family Wealth make our decisions and how do we decide on what the best advice is?

A client’s circumstances and investment-related fees are a clear initial guideline or starting point for advice.

Secondly, independent firms, such as Foundation, are in the advantageous position of being able to use any provider or product covered by its operating license. In contrast, corporate houses (such as the wealth management division in a bank) tend to use their own products and funds.

So, let’s assume we’ve done the initial work and determined the client’s risk appetite, the investment term and investment goal for the capital. We are now faced with a decision between two products, or even two providers. What do we do?

The answer is simple: we listen to our inner voice.  Not just a random voice, but a highly qualified, practiced one.

The role of ethics

In our line of business, “ethics” is a term that is as common as a regular cup of morning coffee. We need the necessary credentials to do our jobs, but we also have to apply a strong dose of ethics every day. We inherently know when something is right or wrong for our client, but sometimes we have to make a decision between two options where there is no definitive “best” solution.

We then have to rely on our internal inner-checks and balances!

Ethical tests

There is no single test to measure a financial planner’s approach when they are faced with a difficult choice or ethical dilemma. The most obvious and important one would be to ask whether something is against the law, but we are also trained to apply the following[1]:

  • The utilitarian principle – choosing the option that offers the greatest good for the greatest number of people.
  • Kant’s categorical imperative – acting in such a way that the action taken could be a universal law or general rule for specific circumstances.
  • The professional ethic – carrying out only those actions that a disinterested panel of professional colleagues would view as proper.
  • The golden rule – treating other people as you would expect them to treat you.
  • The television test – would you feel comfortable explaining your actions to a national television audience?
  • The family test – would you be comfortable explain your actions to your spouse, your children and your parents?

Ethical regulation

The Financial Planning Institute (FPI) is the professional body that governs Certified Financial Planners®. The FPI stipulates that every CFP® professional must spend a minimum of 36 hours per year towards professional training and development.

The hours spent in training and development activities are tracked and verified, and should you not comply with the minimum, your CFP® designation is withdrawn.

In addition, we have the Financial Sector Conduct Authority (FSCA) as our industry regulator. It has prescribed rules that we have to comply with which includes the setting up and running of our business; what our qualifications need to be; how we handle client interactions (and complaints), and ultimately what constitutes ethical behaviour and contraventions.

The FSCA prescribes that serious ethical transgressions can lead to a fine, a suspension of membership, or even a life-long termination of membership – to be avoided at all costs!

The Foundation Approach

Think of your past financial planners or advisors. Can you think of a bad experience you’ve had? Did you ever terminate a relationship with a financial planner because you felt you’ve been “done in”? Poor advice, fees that weren’t disclosed, lack of accuracy or interaction, any basic breach of trust?

Not surprisingly, most of the clients that walk through our doors have had previous planners or advisors. We see the effect of poor planning on a regular basis. Some are minor setbacks, but others have caused serious financial losses; or portfolios that are structured so inefficiently that it will eventually become an estate administration nightmare.

But here at Foundation, we do planning differently. Our goal is to provide excellent advice with integrity. We do this in the following ways:

  • We ensure that all our financial advisors are CFP® professionals, qualified to provide first-class financial planning. We invest in the continuous training and development of our team.
  • We are independent advisors, we don’t get any fees or remuneration to recommend a specific product or provider.
  • Our fee policy is transparent. We don’t charge upfront fees, transactional fees, or commissions. There is no incentive for us to give anything other than the most appropriate advice.
  • We want to build long-term relationships. We want to be the sounding board for both individuals and families and help to make the best financial decisions for life. Every client has a different story and we customise our advice based on every individual situation.

For the Foundation Team the real measuring stick is the way our clients feel after we’ve left a meeting or ended a conversation. We know that relationships are everything and we value trust above everything else – we understand that how we go about our planning tasks affects this.

We aspire to be planners that stretch beyond a single generation. Eventually, the children of clients become clients themselves – because of the value we added to their parents’ lives.

Our approach is, after all, the foundation of our motto: Wealth for Life!

Contact us if you would like to discuss your current financial plan.

 

<Foundation Family Wealth is an Authorised Financial Services Provider>

 

 

[1] University of the Free State. School of Financial Planning Law. 2018. Regulatory Environment. Bloemfontein.

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