What to look for in a good financial adviser

THE value of having a trusted financial adviser is not to be underestimated.

- MARTIN HESSE

Research in the US shows that advisers can boost clients' returns by about 3% a year, on average. That's not necessarily by putting clients into better-performing investments; it's mainly about influencing their financial behaviour.

A recent report from Momentum states that 9% of South Africans use a financial adviser. A more interesting statistic might be the percentage of South Africans who have an established relationship with their adviser, as someone would have with a family doctor, for example. I would estimate that to be below one percent.

The best advisers are professionals with the Certified Financial Planner (CFP) designation, who adhere to high ethical standards and belong to the Financial Planning Institute of South Africa (FPI).

Unfortunately, the majority of advisers in South Africa are not in this league.

Many are so-called "tied agents" in the employ of large product providers whose primary motivation is the commission they receive on selling you a product from that provider.

There are also independent financial advisers (IFAs), who may offer a range of products from select providers but are also commission-based.

There is often enormous pressure on these commission-driven agents and advisers to achieve sales targets, exacerbating what is, essentially, a conflict of interest with their clients.