What is a financial advisor? Do you need one?

Abundance of money or lack of it creates a number of challenges. Even worse at times you don’t even know […]

What is a financial advisor?

Abundance of money or lack of it creates a number of challenges. Even worse at times you don’t even know if you have it or not. That is where financial advisors and planners come in. You need them in order to ascertain your financial status and manage your finances. This article will explore what financial advisors do, types of financial advisors and if you need one or not.

financial advisor or financial planner

What is the difference between a financial advisor and financial planner?

What is a financial advisor?

Financial Advisor is an umbrella term used in the financial services sector to refer to investment managers, financial consultants and financial planners. Financial advisor is not a term only preserved for human beings, certain algorithm based electronic applications like the RoboAdviser are also referred to as financial advisors. When loosely used, the term includes other professionals in the finance sector like accountants, brokers and bankers.

What is a financial advisor?

What is a financial planner?

In South Africa a financial planner is a person certified by the Financial Sector Conduct Authority (FSCA) to assist individuals and businesses plan towards their financial goals. Financial planners are a type of financial advisors who typically focus on offering holistic financial guidance in addition to services like accounting and investment management. For example, financial planners can help you answer questions like, “How do I save for buying a house, or retirement and my children’s college fund at the same time?”

In this article we will use the phrases ‘financial planner’ and ‘financial advisor’ interchangeable; however, it is important for us to keep in mind that there is difference between the two. 

What is a financial planner

What does a financial advisor do?

What a financial advisor does vary with each country, in South Africa the variance is dependent on the type of licence the financial planner or advisor holds. Generally speaking, a financial advisor assesses your current financial status, diving deep into assets, debts and expenses for the purposes of identifying areas that may need improvement.

A smart financial advisor will probably ask you about your goals and develop a plan to help you achieve them. That may mean calculating how much you should save for medium term purchases like houses and cars and long term savings like retirement, while making sure you have an adequate emergency fund. Furthermore, offering tax-planning suggestions or helping you refinance or pay off debt. Financial advisors also help invest your money, either by recommending specific investments or providing complete investment management.

Oftentimes, you can select which services will be most beneficial to you based on your needs. If you do not have much money or have a good grasp of your finances, you may opt for a robo-advisor, it is low cost but still gets the job of investment portfolio management done. Alternatively, if you are only skilled in making money but lacking in its management you may opt for an in-person advisor. In-person financial advisors are generally hands on and will usually go to great lengths in helping you understand your financial status, and options. 

What does a financial advisor do

8 types of financial advisors in South Africa

  1. Investment Advisors:

    In South Africa an investment advisor is a person or business licensed by the Financial Sector Conduct Authority (FSCA) to offer investment advice and or manage investment portfolios on behalf of clients. Investment Advisors are sometimes referred to as Stock Brokers. This is due to the prominent role they play in the buying and selling of stock at the Johannesburg Stock Exchange. Before engaging an investment advisor it is often wise to verify if they are licensed through the FSCA website.
  2. Customer Service Representatives:

    These types of financial advisors are usually found in banks and other financial institutions like investment firms and alternative lenders. They don’t give much advice. Only recommendations on what financial steps to take and which accounts are best suited for you. Consequently, customer service representatives in the financial services sector don’t need licensing. They get their salary directly from the financial institution, so there is no additional charge for you.
  3. Financial Planners:

    Financial Planners work with clients to create a financially sound financial plan to help them reach their goals. Their advice ranges from financial planning to risk management to investment planning to tax planning to retirement planning and estate planning. A financial Planner needs to be a holder of a valid FSP licence.
  4. Financial Consultants:

    Financial Consultant is a generic term used mainly by people who offer financial advice to individuals and companies, who; however, do not hold any form of regulatory licence. Financial Consultants usually have a disclaimer. All their advice is hypothetical and moot, should you lose your money by following their advice, they will not take any responsibility and will not be held liable at law.
  5.  Portfolio, investment and asset managers:

    It does not matter if the business card or company website refers to them as portfolio manager or investment manager or asset manager. They all do the same thing, which is to directly manage the investment portfolio of clients. They can executive trades on behalf of clients through purchasing and selling assets. Generally, Portfolio managers need to be licensed by the FSCA.
  6. Wealth Managers:

    Wealth managers typically work with wealthy families and individuals. Offering them in depth financial planning services as well as investment advice and guidance. Wealth managers often help their clients with every area of their financial life. Including services like estate planning, tax help, charitable giving and even health insurance. Most wealth managers only take on clients with a net-worth of at least R100 million.
  7. Robo-advisor:

    The use of robo-advisors is new in South Africa. Investors are still a bit skeptic about adopting them as primary financial advisers. Regulators are still tiptoeing around coming up with legislation to govern the usage; however, in most western countries robo-advisers are the new normal. A robo-advisor is a cheap automated investment management computer algorithm. The robo-advisor creates and manages investment portfolios based on the client’s goals.
  8. Insurance Brokers:

    In South Africa an insurance broker is a professional licensed by the Financial Sector Conduct Authority (FSCA) to represent clients in their search for insurance policies. They conduct research into what insurance would best serve their clients. The research goes deep into studying terms, conditions, and pricing.

Do you need a financial adviser?

Everyone at one time or another needs a financial advisor. It does not matter if you have lots of money or not. Financial advisors will help you fix your financial life. Say you do not have lots of money, you will definitely find out that having a good insurance broker will come in handy. It is also highly advisable to take some guidance from Customer Service Represents whenever you are opening new accounts.

If you are fortunate, and have a lot of money, you definitely need a number of financial advisors. They will make sure that your money is saved, channeled and invested wisely.

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