Be thorough when checking up on anyone who’s telling you where to invest your money, warns Donna Block
When it comes to choosing someone to help you make head or tail of your investments there is one guiding principle: caveat emptor – buyer beware. No matter how smooth or sophisticated that person may be, the fact remains that at the moment people who call themselves financial or investment advisers, financial planners, management consultants are not regulated.
They may give themselves great-sounding titles, but some of them lack even the most basic skills and expertise for managing other people’s money. You can be sure that to get that slick-sounding job description on their business cards they did not have to pass a test or be approved by a government agency or industry regulatory body.
Chances are no one is looking over their shoulder as your money is put on the line. You wouldn’t go to doctors or accountants who didn’t have to pass their qualifications, but every day people trust their life savings to the advice of so- called “financial professionals”.
Legislation to protect consumers from bad investment advisers is being tabled but is unlikely to be passed before the end of the year. According to Gerry Anderson of the Financial Services Board (FSB), the draft legislation will reign in unregulated financial advisers and “will change the way investment professionals conduct their business”.
At present, only investment managers – people who are actually licensed to invest money on your behalf – are regulated by the FSB. Under the Stock Exchanges Control Act and the Financial Markets Control Act, investment managers must be registered either as a stockbroker with the Johannesburg Stock Exchange or with the FSB. But there are literally thousands of advisers and brokers out there who do not fall under the purview of the FSB.
Anderson said the proposed law will bring all of them under one umbrella, even those who offer advice but who do not deal directly with your money. The proposed legislation seeks to institute a minimum education requirement for advisers, and create a code of conduct.
In the meantime, choose your broker or adviser with care in the knowledge that any Tom, Dick or Maggy can hang out a shingle and call himself or herself a financial adviser.
Be wary of the guy who knows your brother who has a friend on Wall Street who gave him a great stock tip and who is setting up shop as a financial adviser. An investment adviser should be a person who genuinely knows the market and understands your investment goals. They should not only say they are interested in your well-being but should listen to what you want and hope to achieve with your money.
So how do you know who is really going to be looking out for your best interests? Here are a few guidelines:
* Choose someone you feel comfortable with and who is willing to take the time to answer your questions. Don’t be afraid to ask questions. The only stupid question is the one you don’t ask when you don’t have the answer.
* Remember, it’s your money. If the advice being given to you involves a risk you are not prepared to take, don’t do it. You are the boss. If the money is gone you, not the financial adviser, suffer the consequences.
* Be smart. If it sounds too good to be true, it probably is. If someone says they can double your money in a year, be careful. Anything more than a 20% profit in a good market should make you think twice.
* Ask for the risks to be fully explained. Don’t let the financial planner steer you away from your goal of protecting your money. How much input do you get to make for your own investments? You are hiring someone for advice based on your long-term goals and risk levels, not theirs.
* Ask for a written assessment of your investment needs – and make sure you feel happy about it. Don’t make impulsive decisions. If you are not sure about what to do, sleep on it or get a second opinion. Ask about company affiliations. Conflicts of interest may arise if the firm has an affiliation or is not truly independent. Advice given by an investment consultant should not be influenced by any affiliations.
* The new legislation will seek to ensure that all financial advisers have a fidelity bond. Ask your financial planner whether he or she is bonded or if they carry liability insurance to protect investor’s money in case of a shady deal or if the company should face financial difficulties.
* Expect a financial check-up. Investment advice is only a part of the picture. Look for a statement of net worth. Check to see what’s left after all the charges are paid. Follow the money; how did the money come and go? Are there any monies unaccounted for?
* Keep all your records, and that includes letters you give the financial adviser as well as all the paperwork they give you.
There is so much information out there. Between the media, friends and family you will probably have more recommendations than you need about your investments. However, if you decide to retain the services of an adviser, make sure you ask questions, about the adviser and what criteria he or she will use to manage your money. A thorough approach is your best guarantee of finding the right person for your needs.