5 Mistakes when choosing a Financial Adviser

Five common short-tem insurance pitfalls

5 mistakes when choosing a financial adviser

#1 Sticking with the family

Your uncle Ed has been selling financial products for decades, and he’s done alright, hasn’t he? It’s true that you want to work with someone you trust when you’re deciding how to invest your money, but simply going for what, or who, you know, isn’t always the best way to go. Are you able to be completely honest about your financial situation with someone you have an emotional connection and history with? How has Ed really done for his clients, and wouldn’t it be awkward to grill him about his performance? Similarly, feel free to ask your friends to recommend financial advisers they work with, but don’t blindly go with their choice without checking out their credentials. Which brings us to the next point…

 #2 Not checking their background
A list of clients or references shouldn’t be the only thing you ask for. Get a CV as well, hopefully confirming the following: a BCom degree in financial management (certified financial planner professionals need to have a postgraduate qualification in financial planning); at least three years of financial planning-related experience; and adherence to the Financial Planning Institute of Southern Africa’s (FPI) Code of Ethics and Professional Responsibility. If you have any issues in the future, this professional body will investigate the conduct of your financial adviser on your behalf.
 #3 Disregarding their overuse of the word “I”
It’s a bonus to have a good relationship with your financial adviser, but you’re paying for their time, so ideally you want to spend the time discussing “you”, not them. If they use your session to talk about their products instead of what you want or need, you have to question whether they have your best interests at heart. Ideally, they should ask you reams of questions about your current financial status and your long-term goals, and then offer solutions to achieve them.
#4 Blindly following their advice
You are one of many clients that your financial adviser works with. Their clients could range from a CEO who has just bought his third holiday home, to a young doctor starting out in the profession and still saving for his or her first home. Every client has different needs, challenges, goals – you’re all individuals, right? So when your financial adviser makes suggestions for shifts in your portfolio, question them. What are the benefits? Are they risky, or too safe? The squeaky wheel gets the oil and all that, so speak up and be heard! You want an adviser who is open to this communication and discussion.
#5 Forgetting to check if they’re over-committed
The administrative demands placed on South Africa’s financial advisers are increasing all the time. This is great in that the laws protect you, as a consumer, but they are making for a pretty labour-intensive profession. It goes without saying that you want your financial adviser to be the kind of man or woman that ticks all the right boxes on your behalf, but once all the admin’s done, do they have time to keep tapped into the markets, the dozens of new products being launched all the time, plus keep their eye on the ball for specific opportunities for you? Ask how many clients they have, and if it runs into triple figures, move onto someone who has the time to commit to you.
“Look out for these common and costly pitfalls before you sign on the dotted line”

Five common short-term insurance pitfalls

Your short-term insurance contract can often seem overwhelming in its complexity, and particularly frustrating when your claims are not paid out in full. How can you ensure you don’t get ‘tripped up’ when taking out short-term cover?
Underinsurance:
To avoid this, ensure that the insured value of the item or property is equal to the current replacement value, not the original purchase price. Your premiums will likely increase with a higher replacement value, but it could save you a fortune in the long run. We often find that goods stay insured for the original value – for example, a dining room set bought 10 years ago would be insured for R6 000. But to replace the dining room set could cost R20 000 today, so the claimant could be left very disappointed when they leave the shop with an inferior product to what they had.

Excess:

An excess amount is the first amount payable for which the client is responsible – it is the agreed amount of money you pay the insurer as a contribution towards repairs or replacement. An excess amount is applicable to most short-term policies, and it is explicitly stated in all policy documents. Clients are advised to read this part of the policy carefully so they don’t get a shock when it comes to claiming.

Exclusions: With motor insurance, exclusions are one of the main pitfalls. Clients often try to claim for mechanical or electrical breakdowns, but these form part of the car’s warranty and are explicitly excluded from most short-term insurance covers. Be sure to check that your policy covers multiple drivers of your vehicle and make sure you have declared the use of your vehicle correctly for either business use or private use.

All-risk insurance:

This refers to items that are mobile, such as jewellery, cameras, laptops, phones or tablets. These are generally insured under your household content policy only when they are at your home address. As soon as you leave the property, you need to supplement the cover with an all-risk addition to your policy. You should supply original purchase invoices or valuation certificates if applicable, to your insurance company, and keep a copy as proof of ownership.

Personal liability:

This refers to insurance against a third party suing you in your personal capacity, for financial loss, physical injury or death. The most common form is fixed in your householder’s insurance, covering the structure of your home and its permanent fittings, but further cover typically includes medical costs, restoring or replacing damaged property, pain and suffering to the injured party, loss of income, legal costs and expenses.

Standard cover for personal liability is between R2m and R5m, but this may not be enough to save you from financial ruin if someone does claim against you. Most insurers, therefore, offer top-up cover at a low additional premium – extending your cover to R10m or even R20m. As the chances of you claiming are very low, extended cover is highly affordable and probably well worth it.

FSP License

In terms of the new Financial Advisory and Intermediary (FAIS) Act, every financial advisor in South Africa needs to be licensed with the Financial Services Board (FSB). You can rest assured that NO unlicensed financial adviser will appear on this site back to top