Why a great financial adviser is well worth their salt

What value do you place on financial advice?

Industry studies estimate the value that financial advice can add to portfolio returns over the long term at around 3%, depending on the time period and how returns are calculated. For example, The Advisor Advantage estimates adviser value-add at an average of 3% per year; the Value of a Financial Advisor study estimates value-add at more than 4% per year; and research titled Putting a Value on Your Value: Quantifying Vanguard Advisor's Alpha® estimates lifetime value-add at an average of 3% per year.

This percentage may sound small, but it can add up to quite a significant amount over time. Here are some more reasons consulting a financial adviser may be worth your while.

Along with an extra average of 3% per year, here are four benefits of financial advice

1. Financial advisers are equipped with knowledge and expertise that most of us are not. They know the investment markets and understand that investment performance can be volatile in the short-term. An adviser worth their salt will coach you through these volatile times to help you stay the course of your investment and not disinvest when the market is down, only to invest again when the market is up. Research has shown that this is one of the most important things an adviser can do to ensure their clients' investment success.
2. They also know what financial products are on offer - which means you'll have access to more opportunities.
3. Your financial adviser will take a comprehensive look at all your financial needs and current assets. This allows them to construct an investment portfolio that best suits you and your income. This perspective is more difficult to have "from the inside".
4. The longer you work with a financial adviser, the better they'll understand your financial situation, and the more you stand to benefit from their advice. With mutual openness and trust, you can develop a long-term relationship with someone who is dedicated to helping you achieve your financial goals and build wealth over a lifetime.

How do I know if my financial adviser is qualified?

When you place your financial future in someone else's hands, it's only natural that you want to be sure they're qualified. Fortunately, the financial services industry in South Africa is highly regulated.

The Financial Planning Institute (FPI) is an accreditation standards body for financial services professionals. They issue the Certified Financial Planner accreditation to financial advisers in South Africa. All qualified financial advisers (and the firms they work for) must be registered with the Financial Sector Conduct Authority (FSCA). Financial advisers can also be part of the industry's trade association, the Financial Intermediaries Association of South Africa (FIA).

When you meet with your financial adviser for the first time, it's a good idea to ask them about their qualifications and the services they can offer you. This will help you to understand them as financial services professionals.

What do financial advisers charge?

Financial advisers are usually paid on a commission basis or with fees. Fees can fall into three areas: an initial planning fee, an implementation fee, and an annual advice fee, which covers the monitoring and review of an investment portfolio. People sometimes forget how important it is to revisit their investment strategies, so don't overlook an annual advice fee.

Remember, investment isn't a once-off event, but a long-term process - and well-packaged advice based on an adviser's qualifications, training, experience, professional offering and aptitude in their role is worth paying for. However, don't feel shy to talk openly with your adviser about their fees, what it covers and what the industry norms are.

Where can I find a financial adviser?

If you don't have a financial adviser yet, Discovery Invest can get a qualified adviser to contact you. Fill out this form, and we will be in touch.

*Sources: Envestnet, Capital Sigma, The Advisor Advantage estimates advisor value add at an average of 3% per year, 2019; Russell Investments 2019 Value of a Financial Advisor estimates value add at more than 4% per year; and Vanguard, Putting a Value on Your Value: Quantifying Vanguard Advisor's Alpha® 2019 estimates lifetime value add at an average of 3%.