News Article : Financial Advice
|Category:|| Advisers & Brokers : Networks|
|Posted:||01 Jan 2005|
Choose your financial adviser carefully
Choosing the financial adviser which best suits your needs is worth investigating properly. Johann van Rensburg, president of the Insurance Brokers Council (IBC) says that financial advisers generally fall into one of four categories; corporate brokers, bank brokers, agents and independent financial advisers.
Corporate brokers include the larger broking organisations such as Alexander Forbes and Glenrand MIB who employ a large number of financial advisers and support staff. While financial advisers employed by corporates have access to backup resources and expertise, their target market tends to be larger companies rather than the individual. Generally corporate brokers do not have strong ties with banks or life assurance companies.
Bank brokers are basically brokers employed by a bank. Most of the major banks have set up brokerages to sell a range of financial products to their client base.
In line with the worldwide ‘bancassurance’ trend, most of South Africa’s larger banks have major shareholdings in life assurance companies. Old Mutual is tied to Nedbank, Sanlam to Absa, Liberty Life to Standard Bank and Momentum Life to First National Bank and so on.
While this arrangement allows the bank broker to broaden the range of products on offer to clients, there is the question of independence. A recent article revealed that 86% of one bank brokerage’s 2004 new business was placed with life companies with which the bank had ties. This highlights the conflict of interest inherent in the bank broker model.
Agents are commission-earning financial advisers the majority of whom are tied to one of the life assurance companies. While agents are not formally employed by the life assurance companies, they do have a formal contract and are able to use the resources and facilities of the life company in return for support. As with the bank broker there is the question of independence and this model suffers from same inherent conflict of interests.
Independent financial advisers are either independent one man brokerages or small to medium sized brokerages that offer financial advice either to individuals or SMMEs. Mr van Rensburg points out that the advantage of using the services of an independent financial adviser is that they are not tied to any insurance, investment or financial product company. “They are therefore able to shop around for the most appropriate product without interference from an employer,” he says.
The downside is resources. Independent financial advisers do not have access to the resources of the larger corporate or bank brokers and access to specialist backup is critical. However this can be overcome. “A substantial broker organisation such as the IBC ensures that members have access to support, education and backup systems normally only available to the large brokerages,” he explains.
Ultimately any of the four types of financial adviser will be in a position to provide quality financial advice and the selection of adviser will vary according to individual needs and preferences.
When selecting a financial adviser it is critical that you check the adviser’s credentials. “A financial adviser cannot by law operate without a FAIS licence and you must at the very least ask for proof of compliance,” says Mr van Rensburg.
However, even with the advent of FAIS, clients are not necessarily assured of expert advice. “The minimum education criteria required for FAIS licensing is a matric certificate so you should also ask penetrating questions about the financial adviser’s qualifications and alliances and insist on references,” he concludes.