Let’s face it – most of us don’t have the knowledge or experience necessary to navigate the minefield of financial planning, particularly when it comes to risk insurance products such as critical illness, disability, life and income protection.
Even for the more financially savvy, it can be a minefield to try to navigate the interaction of complex financial products. So unless you’re willing to risk your financial future, there are few better suited to the job of ensuring you get your planning right than a professional financial advisor.
“Once you have decided to work with a financial advisor, the real challenge lies in finding the right advisor – someone with the expertise, qualifications, practical experience, service levels and personality to meet your specific needs. That’s why you should try to find someone with whom you can develop a long-term relationship. Only then can an advisor become your financial partner in protecting your family throughout your lives.
The key to finding the right financial advisor is to look for a partner than can help you manage your total risk exposure and financial security – not just purchase insurance,” explains Andre Froneman, product specialist at Altrisk, voted the 2012 Long Term Insurer of the Year – Risk Products (2012 FIA Awards).
The financial advisor you choose can determine the success of your planning efforts. This makes it one of the most important financial decisions you make, so you need to be sure of what to look for. To help you in your decision-making, Altrisk recommends you ask the following important questions when choosing a financial advisor:
Q: Are you independent or tied to an insurer?
A: An advisor tied to a particular insurer will only be able to sell that company’s products, while an independent financial advisor can advise on and sell products from any provider across the market. This allows you to compare a variety of insurance products and decide on the one that best suits your needs.
Q. How much will I pay?
A. When choosing a financial advisor, it helps to understand how your advisor gets paid, because those who secure commissions may apply a different methodology to advisors who work on a fee basis. Financial advisors get paid in one of the following ways:
Commission only: Some advisors only receive commissions from product providers for providing financial services and selling products, such as investments, insurance products, and healthcare funding products.
Commission and fees: Commission and fee advisors may charge you a fee for developing a financial plan for you, and then receive commission when they sell you insurance and investment products recommended in your financial plan.
Fee-only: Fee-only financial advisors usually provide advice or ongoing management of your financial plan. You may find that you need regular advice from your advisor for your business dealings, or you may have a complex financial portfolio that needs regular input, but does not necessarily involve the sale of a product which earns the advisor any commission. However, there is enormous value in your advisor’s time and advice given, and in these scenarios a fee-based system may work best.
Discuss the benefits and disadvantages of all payment methods with your advisor and establish upfront the basis upon which you will work with your advisor.
Q. What qualifications do you have?
A. Ask to see proof of your financial advisor’s credentials. The insurance industry recently formalised qualifications for financial advisors, and you should ensure that your advisor is Financial Advisory and Intermediary Services (FAIS)-licensed. If an advisor is working under supervision it means that they still need to qualify by passing their regulatory exams and will be working under the guidance of a qualified individual. FAIS ensures that there is significantly less room for error and malpractice. As a consumer, you are now better protected as emphasis has been placed on putting client interests first, and ensuring the quality of service and advice.
Q. How do you determine my specific needs?
A. A good financial advisor will look at your needs and potential risks over the long term – assessing everything from your future goals to life cover, critical illness and disability, income protection, retirement, savings, investing, and healthcare funding. They should also look at how your last will and testament interacts with your financial plan.
And remember, just like there is no single product provider that can offer all of the necessary covers in one neat, well-organised and appropriately scoped package, your advisor may also call on specialists to look at specific areas of your financial plan. For example, he may call in a specialist in trusts, or a legal expert to look at your will, or a tax expert to look at the tax implications of your estate. A good advisor will always support the need to bring in specialists, especially with complex portfolios, to ensure that all your bases are covered and all consequences considered.
Q. How will you communicate with me and how often?
Staying in touch with your financial advisor is critical to managing your portfolio and developing their knowledge and understanding of your needs. The regularity with which you meet will depend on your goals. These should be agreed upon with your broker at the outset. If your objective is simply to implement a simple risk insurance solution, such as bond cover and a long-term retirement annuity to supplement your company pension scheme, then an annual update may be adequate.
If you are more goal-driven in terms of your finances – perhaps with aspirations to retire young and wealthy, or to leave your job within five years to start your own business – your needs will be very different.
It is also important to consider “trigger events” that may necessitate action or advice; such as retrenchment, divorce, or additions to the family. Any change in circumstance can alter your risk and should be evaluated as part of your financial plan and strategy.
Q. What claims service do you offer, and what has your claims experience been with different providers?
A. Look for a financial advisor who understands the importance of issues such as service delivery and claims settlement – purchasing an insurance policy should be about more than finding the cheapest rates. Your advisor has a moral obligation to act in your best interests and manage all of your claims on your behalf, ensuring that the process runs smoothly. Find out about their experience with difficult claims or cover disputes, and look at any claims information they may have about different insurers. It’s important to know that the insurer you select has a solid track record when it comes to claims settlement and an ethos of acting in their client’s best interests.
Word of mouth is the best way of establishing your insurance broker’s reputation for service. The role of the financial advisor has become increasingly important as the global economy undergoes fundamental shifts. Now, more than ever, it is vital to know that the person you entrust with your financial future has your best interests at heart.
Article originally published by: Andre Froneman, product specialist at Altrisk