A financial advisor is a professional who earns their income by providing financial advice to clients in-person. Just as you would employ an architect to design a home, you may hire a financial advisor to design a financial plan.
Here’s a look at the types of financial advisors, and how to choose the right advisor for you.
3 types of advisors:
Robo advisers are digital platforms that offer automated, algorithm-driven financial planning services with little or no human oversight. Robo-advisers who are good at what they do often combine efficient, low-cost passive investment techniques with high-quality digital guidance algorithms. These provide a balanced risk and return profile from the capital markets (share and debt markets) to assist customers in meeting their investing objectives.
According to experts, by 2022, robo-advisers will manage US$177 million in South African assets. A typical Robo-advisor uses an online survey to gather information about the client’s financial position and future aspirations. It then applies this information to develop efficient, low-cost passive investment methods. A good Robo-advisor provides simple account setup, strong goal planning, account services, portfolio management, security features, attentive customer care, and extensive education investment.
Robo-advisers’ fees are typically substantially cheaper than those of other types of financial advisors. The fees you pay for good Robo advisers should fall as you spend more in them. Costs typically range from 0.25 to 1.5 percent (including the cost of the investment product, plus the cost of ongoing advice and administration).
A Robo adviser is an excellent choice when you require assistance with investing goals and investment management but not with comprehensive financial planning. It is also advised for people who are new to investing and are unsure where to begin, as well as those who are unfamiliar with exchange traded funds or mutual funds. This is true since you will not have to make hard investing judgments. Robo advisers are convenient in that you only need to specify how much money you want to save, and the technology will do the rest. This approach is also suitable for lesser investments, as Robo advisers may accept as little as R100. This, along with decreasing fees, allows those who were previously unable to invest to do so.
A conventional financial advisor works one-on-one with clients to assist them achieve their short- and long-term financial objectives. They provide tax guidance as well as recommendations on specific investments and insurance products. You get more than just financial advisors when you choose a typical financial advisor. In addition, they serve as communicators, instructors, planners, and coaches for their clients. The advisor wants to know why you’re investing and what your short, medium, and long-term goals are. The adviser assists you in setting goals, determining your risk tolerance, and developing a customised plan. A good advisor will provide you with personalized guidance that is geared to your specific situation.
On an annual basis, traditional advisors often charge 1% – 2% of the value of the investor’s investment portfolio. The typical financial adviser option, which includes a personal human touch, comes at an additional expense, but it’s an option that many individuals value and are prepared to pay for.
Traditional financial advisors are a better choice for clients who have complex or continuous planning needs. It is also recommended for more affluent or technologically averse investors because a traditional financial advisor would provide a more personalized service. Traditional advisors also offer a broader range of financial guidance and, in many circumstances, a true person-to-person contact.
Consumers are well-versed in the concept of doing things online, from online shopping to online banking and even online schooling. It was just a matter of time before we lived in the era of financial planners, with life changing so rapidly as a result of technology and everything happening online. The concept of online financial planning is still relatively new to South Africans, but it is gradually gaining traction. This option includes a number of online planning services that combine computer-driven portfolio management with access to real-life financial planners.
An online financial planner may provide specialized services as well as a comprehensive financial plan. You can only communicate with them by digital means such as phone calls, video conferencing, and emails. Automated investment management, similar to that of a Robo-advisor, is available through online planning service providers. In addition, if you have any questions, you can chat with a team of financial consultants.
The finest online financial planners resemble traditional financial planners in many ways. This is due to the fact that you will be paired with a specialized human financial advisor who will manage your investments and collaborate with you to construct a comprehensive financial plan. Because of their nature, they are also referred to as hybrids. Online financial planners enable you to define and keep to specific goals for your retirement, education, investments, and spending. Finally, effective online financial advisors assist you in making wiser spending and purchase decisions, as well as cheering you on as you achieve your financial objectives.
Online financial planning services are often less expensive than traditional financial advisor services. However, because of the human involvement, it is more than a Robo-advisor. Services range from those with relatively high investment needs of R250, 000 or more to those with no minimum investment requirement.
Online financial planning services are useful if you’re seeking for a low-cost advisor who can provide you with high-quality, personalized guidance. Advice that takes into account your opinions and emotions yet is offered at an affordable charge (while also avoiding fees of 1% or higher). It’s particularly convenient for individuals who are constantly on the move because you may contact your advisor from wherever you are. Hybrids are also recommended when you require assistance investing for financial goals. These can include retirement, but also situations in which you do not want or cannot afford a comprehensive financial strategy.
If you’re seeking for a comprehensive financial plan that addresses all aspects of financial planning, such as risk, retirement, estate planning, tax planning, cash flow, debt, budgeting, and business planning. The more complicated your financial condition, the more likely you are to seek the assistance of a professional. Young professionals with lower net worth and income levels who feel underserved and ignored by the financial services business are likely to find robo-advice appealing.
Robo advisers and online financial planners are best suited for tech-savvy individuals with straightforward financial portfolios. Furthermore, for millennials who like to live online, the lack of human interaction is considered positively, thus these possibilities are also advantageous to individuals who would benefit from obtaining services without personal interaction. Finally, customers will vote with their feet and choose the path that leads to the best counsel for them.
Costs are a key issue to consider when selecting a financial plan because they will affect how much you are willing to pay. Personal services are frequently more expensive. Traditional financial counselors are more expensive and require greater initial investments, and while humans are prone to blunders, implicit biases, and errors, those fees and even those flaws can bring both value and solace. Robo-advisors are a low-cost method to invest if you understand what you’re paying for and what you’ll get in return.
In a world rife with corruption, you can never be too cautious about who you connect with, especially when money is involved. All of the evidence of fraud, self-dealing, and pyramid schemes should serve as a reminder to check, verify, and review who you work with. Before you sign a contract with an advisor, look into their qualifications, experience with previous clients, criminal convictions, disciplinary actions by regulators, and other information. Don’t be fooled into thinking that huge corporations are safer since, in our field, bigger companies don’t ensure protection; it only means they have greater coffers.
Do your homework. In South Africa, the competent authority, FPI, allows you to examine their database for active members to authenticate the advisor’s membership status. Make a list of the questions you want to ask. It could be how they function or anything else you believe is vital for you to fully comprehend everything. Address any concerns that generate red flags for you during the process, and if you detect too many red flags, believe your inner judgment.
Getting a financial advisor is a big step, make sure that you that the choice you make is the best possible option for you.