Be cautious about where you seek financial advice
The lockdown has been a very interesting time for many financial advisers. Now that people have more time on their hands and are mostly in front of their computers, there seems to be a greater need to get their financial affairs in order. This is a very good thing.
Over the years, I have noticed how many interesting and sometimes dangerous conversations about money take place on many different platforms. A recent observation is that on social media, recommendations of a financial nature are often dished out by popular individuals who have no relevant experience, appropriate qualifications or authorisation - often to a gullible and potentially ignorant public.
The reality is, financial advisory work and the world of investments in general can be complex, is multi-faceted and requires a lot of customisation. Money, like health, affects every aspect of your life and should be treated with caution and respect both from an adviser and client perspective. Particularly now, with world economies in disarray and livelihoods at stake.
You simply cannot take blanket statements made to the general public about personal finance as gospel. More work needs to be done long before you implement any recommendation given to you.
Let us start here. What is the definition of advice? "Advice" is defined in the Financial Advisory and Intermediary Services (FAIS) Act as any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client or group of clients:
(a) In respect of the purchase of any financial product; or
(b) In respect of the investment in any financial product; or
(c) On the conclusion of any other transaction, including a loan or cession, aimed at the incurring of any liability or the acquisition of any right or benefit in respect of any financial product; or
(d) On the variation of any term or condition applying to a financial product, on the replacement of any such product, or on the termination of any purchase of or investment in any such product.
The FAIS Act regulates the business of financial services providers for the ultimate protection of consumers. The act also clearly states that financial advice is furnished in the course of financial planning.
Financial planning is the process of determining how you will achieve a specific financial goal by following a specific approach in developing a plan that is customised to your specific circumstances.
The Financial Planning Institute, which is an independent professional body for financial planners in SA, recommends following a six-step financial planning approach in developing a financial plan.
Step three of this approach is crucial - it involves the analysis and evaluation of your financial status and must happen before advice is given.
And who should be giving financial advice? Financial advice should only be given by a qualified and registered financial services provider or a representative of that provider. It is very easy to establish if an entity is licensed to operate as a financial services provider and if their representatives are authorised to give this advice and for which product categories.
Familiarise yourself with the Financial Sector Conduct Authority's (FSCA) website, which has a database of licensed entities and their representatives. It is the regulator of financial institutions that provide financial products and financial services.
That will let you know that the person you are potentially taking financial advice from is known by the relevant authorities and means there will be some sort of recourse should there be a dispute in your engagements with them.
In summary, before taking financial advice from any business or person, do the following:
• Verify the business and ensure it has the requisite licence to operate as a financial services provider;
• Ensure that the person you are dealing with is allowed to give advice for this entity;
• Ensure that your potential financial adviser is well versed in the subject of personal financial planning and has the necessary credentials to do so; and
• Look up the six-step financial planning process and ensure that it takes place before implementing any recommendations.
You work hard for your money and cannot afford to entrust it to reckless and unscrupulous individuals.
• Sidaki is a certified financial planner and is director and wealth manager at Wealth Creed