What you can expect from your Financial Adviser

What you can expect from your Financial Adviser
Ingé Lamprecht, MoneyWeb February 23, 2017

What you can reasonably expect from your Financial Adviser

~ A look at the Annual Review Process ~
 
JOHANNESBURG – I recently had the misfortune of listening to a financial adviser taking clients through their annual review.
I wasn’t quite sure what to expect, but anticipated a discussion about the clients’ financial situation, their short-, medium- and long-term goals and whether anything changed in their personal circumstances that warranted a change to their portfolio.

Perhaps some reassurance about their investments being positioned for the long term in spite of difficult market conditions and an explanation of the fees the adviser was earning?

So when the adviser spent about 20 minutes of the hour-long discussion explaining (quite superficially in my opinion) what the clients’ options were with regard to their endowment policies, I was taken aback.

Was I being unreasonable thinking that this engagement should have gone differently? Was I being overly critical? Expecting too much?

(Perhaps my real concern was a comment suggesting that an 8% drawdown rate from the clients’ living annuity would be appropriate at a future date. According to the Association for Savings and Investment South Africa (Asisa), living annuity policyholders withdrew on average 6.44% of their capital as income in 2015. Although a general rule of thumb suggests that pensioners shouldn’t draw more than 5% per annum, some studies indicate that even a 5% drawdown rate may be too high in certain circumstances.)

This article however, will only deal with the broader requirements.
 
What Regulations Require

A financial adviser that is providing on-going financial services to clients must regularly (but no less frequently than annually) provide a client with a statement of account, explains Manasse Malimabe, head of the Financial Services Board’s FAIS compliance department.

“There is no specific requirement for a meeting.”

The requirement, which was introduced on August 14 2008, is an effort to protect investors and keep clients informed, Malimabe says.

In terms of the General Code of Conduct, a financial adviser must provide the client with a written statement identifying products that are still in existence, and must also provide brief current details (where applicable) of the following:
  • any on-going monetary obligations of the client in relation to these products;
  • the main benefits provided by the products;
  • where a product was marketed or positioned as an investment or as having an investment component, the value of the investment and the amount which is accessible to the client; and
  • any on-going incentives, consideration, commission, fee or brokerage payable to the financial adviser in relation to the products.
 

However, where the client is aware, or should reasonably be aware that the financial adviser has stopped providing on-going financial services to the client, such a statement does not have to be provided.

Gavin Came, director of the Financial Intermediaries Association of Southern Africa (FIA), explains that while regulation requires that clients be presented with the opportunity for an annual review, it doesn’t have to be a face-to-face or physical meeting.

The FIA regards the contractual agreement between the advisor and the client as extremely important. These agreements set out what clients can reasonably expect – for example a comprehensive financial review or an engagement on a single investment.

Comprehensive financial planning would entail a review of the client’s income, expenses, assets and liabilities and also consider any changes to their personal circumstances (divorce, a new baby etc.) and whether any adjustments would have to be made to the portfolio under the circumstances.

“We can’t break the law – and the law says you have to do an annual review – but you can set the level of that engagement by way of a contract.”

There are situations however where clients prefer to receive their written statements via e-mail, which then becomes the review meeting, Came says.

He says it would be problematic to legislate the level of engagement required, as there is a risk that low income savers (or people investing small amounts every month) may be excluded from the financial advice market. It wouldn’t be financially viable to take on these clients.

But alarm bells should be ringing if investors don’t hear from their financial advisers for a prolonged period of time.

Most of the interactions between clients and advisers are adequately dealt with, he says.
 
Risk
Came says every adviser worth his or her salt would prefer to have a comprehensive financial planning relationship with the client rather than isolated contact where the client only asks for help with a single investment.

It is very easy to recommend the wrong investment approach or product if you only know half the story. The landscape has changed significantly and the regulator often assumes the adviser has a comprehensive relationship with the client although this may not be the case, he says.

“The increase in the risk for the financial adviser has all been driven by regulation and it is making financial advisers very careful about who they engage as clients.”
 
Credit To:  Lamprecht, I.  (2017, January 25).  What you can reasonably expect from your Financial Adviser.   Moneyweb.   Retrieved from: https://www.moneyweb.co.za/mymoney/moneyweb-financial-planning/what-you-can-reasonably-expect-from-your-financial-adviser/
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