DIY vs asking an expert: Which is best?

DIY vs asking an expert: Which is best?


The Financial Advisory and Intermediary Services Act (FAIS) places all South African financial advisors into the same category and they can now be held accountable for any inappropriate or wrong advice given to their clients. Previously, before the demise of so many fraudulent investment schemes, it was very difficult for investors to bring a charge against either the institution or their financial advisor, as the legal costs could be prohibitive. It’s now much easier to do so, as financial advisory organisations are regulated and have compliance officers who deal with complaints. Complaints may also be referred to the FAIS Ombud who has the power to make awards in favour of clients, if he finds that the advisor has given inappropriate advice.

Under the new regulations all financial advisors have to write exams and can only be licensed if they have successfully passed. While I found having to write exams a little daunting as I hadn’t taken an exam since the 1960s, I recognise the importance for financial advisors to have their knowledge tested; after all, they are providing advice about their clients’ money.
The public needs to feel confident that their financial planner is accountable to them. There are different levels of licensing based on the ability of the financial planner. Each licence specifies the area in which the financial advisor may provide advice.

How does one choose a financial planner?

  • Experience and track record are crucial.
  • Are they an agent or a broker?
  • An agent can only transact business for one company and, while that company may have some top products, it’s unlikely that every product they have can compete, whereas a broker can shop around.
  • Capability is one thing, but compatibility between you and your financial planner is imperative.

The costs of using a financial planner

Life Assurance, Disability, Dreaded Disease
Commissions decrease as you get older, but policyholders under the age of 40 will pay 75% of the first year’s premium and one third in the second year. Every increase to the policy will result in a new policy with new commission payable.

Investment Policies
I would suggest that you pay no more than 1% as an upfront commission although many advisors will try to take the maximum allowable which is 3%. Ongoing fees should be between 0,5% and 1% depending on the amount invested. You can expect your advisor to meet with you regularly as they are earning ongoing fees. If you are not happy you can change your broker and the new broker will then start earning the fee that you were paying.

Future knowledge

You need to know how the financial planner keeps abreast of changes in legislation, changes in the industry and the depth of his product knowledge.

What can you expect from your financial planner?

  • How does he gather information about you? Is he asking the right questions in order to obtain all the information about your financial circumstances?
  • How will the information be analysed and what recommendations are made to meet your requirements and satisfy your long-term needs?
  • All recommendations should be in writing and all costs associated with the products recommended, clearly stated.
  • Has the financial advisor fully explained to you all the risks associated with any investment recommendation? It is very important for investors to understand as much as possible about risk and realise that there is an upside and a downside to any growth investment.

If you are dissatisfied with the service that you have received from your financial advisor, you can move to another without having to switch investments when you change your financial planner.

Can you be your Own Broker?

Can you be your own lawyer, accountant and doctor? Many individuals believe they can make their own decisions and don’t need help from a financial planner. The answer to this question depends on the following:

  • Time to do comprehensive research
  • Regular updates and changes happening in the industry
  • Training and knowledge
  • Experience

If you can answer yes to most of these questions, you certainly could be your own investment advisor and even buy life insurance, disability and dreaded disease insurance from direct insurers. In my experience, this often costs investors more than the fees they would have paid a broker.

Bryan Hirsch
BRYAN HIRSCH has been in the financial services industry for 47 years and is a director of Bryan Hirsch Colley & Associates. He has written two books, the first Bryan Hirsch’s Guide to Personal Finance and more recently, Steps to Financial Freedom. Bryan has written for many of South Africa’s top financial and business publications, has been a weekly guest on Radio SAFM for 18 years, and has his own weekly TV show You & Your Money on Summit TV.