We deliver a broad range of financial services and products to individuals and enterprises. We focus on wealth creation, wealth preservation, asset management and insurance. Throughout, we place a strong emphasis on personal service and building lifelong relationships with our clients. We follow the six-step financial planning process. The Financial Planning Institute of SA also advocates this method.
What’s the purpose of the six step financial planning process? Well, consider this frightening thought – that wealthy economies such as those of the UK are considering increasing the retirement age to 68. Australia has already increased the maximum age you can invest in retirement annuities to 75. Their concern is motivated by the possibility that the retirement funding requirements of their populations will soon be insufficient. The problem is exacerbated by the fact that we are living longer than before and we therefore need more retirement capital.
In SA we do not have anywhere near to their social budget per capita. This is where professional financial planning can help.
It is globally accepted that there is a financial planning process that must be followed that ensures you receive sound financial planning advice. We follow the six-step financial planning process.
- Step 1 is the initial discussion with your financial planner and helps establish the working relationship. At this stage your financial planner should ensure that you understand the six step process, identify your needs, agree on the level of advice you require, explain his or her role, discuss payment for services and obtain consent to proceed with advising you.
- Step 2 is about gathering information on your current financial situation, commitments, short to long-term financial goals and your circumstances.
- Step 3 is the financial assessment. It should involve a work-shop to assess your current financial situation. This may involve an analysis of your assets and liabilities, cash flow, current risk cover, investments and tax strategies. This allows you to investigate solutions to problems and identify strategies to capitalise on opportunities.
- Step 4 requires that your financial planner offers strategic recommendations that address your goals based on your information. The recommendations should be explained to you in such a way that you understand them and should also be recorded in a written record of advice.
- Step 5 is the implementation stage. Once you understand and are completely satisfied with the recommendations, you will need to authorise your financial planner to proceed with the implementation of the financial plan. After implementation, you and your financial planner will review final documentation for accuracy and to ensure that the plan has been implemented as agreed.Your financial planner should provide you with an updated summary of the consolidated financial plan.The first five steps of the six-step financial planning process are easy, since they are essentially a mathematical exercise. The final step requires the skill and experience to drive the performance of your resources.
- Step 6 requires that your financial planner offers ongoing care. This is not an attempt to sell you a new product – it is a service that is separately costed in a fee-based environment.
The service will be customised to your requirements; regular review meetings will be scheduled over the ensuing years. At these meetings, your agreed strategies and investments are proactively reviewed to ensure that they continue to meet your financial objectives. The review process will also provide you with an opportunity to ask your financial planner any questions you may have. Reviews should be requested when you experience any life changing events – for example, the birth of child, sickness or divorce. This will enable your financial planner to adjust your plan accordingly.
In our experience positive investment returns are harnessed when the review process has been followed and investors have not panicked and switched out of temporary under-performing assets. When investments don’t perform, we work harder to coach against actions triggered by fear or greed.
Financial planners in South Africa are embracing a new regulatory framework to ensure investors receive better financial planning advice. The regulators, the public and the press are demanding that a qualified professional financial planner provides this advice. Central to this debate is how to value a good financial planning service.
There’s a story which comes to mind when this discussion is raised, particularly referring to professionals whose intellectual capital is their greatest asset. It goes something like this: Picasso was asked to sketch a lady’s picture. He did so in 15 minutes. The lady was delighted at his work. He asked for a hefty sum of money for the sketch. The lady was most upset at the price she was asked to pay. “But it only took you a few minutes to do the sketch”, she exclaimed. “But it took me 15 years of training to be able to complete it so well,” he replied.
Clients of most professionals are generally happy to pay up once they understand the ability to provide sound advice is built on years of education and experience. Yet when it comes to financial planning advice, full disclosure of costs sometimes leads a client to walk away. This is puzzling when you consider the vital importance of having an independent competent financial planner on your side.
One must clearly examine the potential consequences of not having a financial planner. Financial planning is one of the few professions that need to take a pro-active role in the client relationship. Most professions act reactively.
Clients generally seek the services of an accountant when they need to file a tax return. It is easy to put off financial planning as there is no sense of instant gratification. But that may result in you living beneath your means if you are wealthy or, worse living beyond your means if you have insufficient capital. You may also make poor investment decisions and not address estate or disability planning. There is also a greater need for financial planning advice for various reasons, for example the disappearance of lifetime employment, job changes, increased divorce rates and globalisation.
Many individuals embark on the task of managing their own affairs, but there will come a point when they too will need to seek financial planning advice. The responsibility on most individuals has become too onerous due to the complexity of retirement, tax, estate and investment planning issues. There is also an ever-aging population in increasingly fragile health who are simply too daunted as investors to go it alone.
The choice of financial products and service providers is no longer a simple task.
Financial planners research the various products and providers, and source the best solution for the individual. In the investment arena there is a choice of funds, fund managers, products, platforms, tax vehicles and fee structures. As far as risk solutions are concerned, there are various benefit options, costing structures, guarantee periods and discount options. A one-size-fits-all approach can no longer be adopted.
The cost and risk of providing financial planning advice has increased significantly. Costs include professional indemnity cover, compliance services, risk analysis, IT and skilled staff. Clients have a right to demand a higher level of technical competence than they have received in the past. Advice needs to be clear, objective and appropriate, and importantly, there must be written evidence of a process.
Financial planners are entrusted to take the emotion out of your financial matters.
We are all emotional about our future and our finances. Emotions of fear and greed can be destructive to your financial plans. For example, a couple of years ago, many investors followed the herd and placed their investments in money market accounts. If they had resisted the fear of the equity markets and had kept their balanced portfolios, their returns would have been considerably higher. How do you quantify the loss of return to the investor?
A financial planning practice must be well funded and well managed like any accounting or legal practice. You must be assured that if your financial planner is no longer around, there will be support from a financial planner in the same practice that applies the same consistent process.
The current fuss globally over fees is understandable, but the value of good financial planning advice is priceless. The issue is therefore how the investor, who wants expert professional financial planning advice, should pay for that advice.
Fees may be based on an hourly rate, funds under management, performance based or commission based. It is vital that whatever method of charging fees is applied that it is agreed upon upfront and transparently. The Financial Planning Institute has a code of ethics that requires fees to be disclosed and to be commensurate with the advice rendered.
It is in your best interest to engage a financial planner who is focused on your interests and has systems and processes in place in their practice to ensure continuity of advice and that your financial goals and expectations remain on course.
We believe in tailor-made investment and insurance solutions for our clients. From cover for your current lifestyle through to planning for retirement, our solutions are designed to ensure financial security and growth throughout your life.