Financial advice in South Africa: everything you need to know 📚
Spending money is oh so easy, but saving and investing is another story! If you’re fortunate enough to have some spare cash left over at the end of the month, what on earth do you do with it? Do you pay down your debt, invest it, hide it under your mattress? You could go looking for the answers on the internet, where #fintwit pundits dispense all sorts of advice about the stock market, cryptocurrency and other get-rich-quick schemes, but that’s like googling your symptoms when you feel sick instead of visiting a doctor.
Yes, when it comes to deciding what to do with your hard-earned money, it pays to consult with a professional. Here’s what you need to know about financial advice in South Africa, and who can provide it legally.
Financial advice is regulated
The financial services industry is regulated by the FSCA (Financial Sector Conduct Authority) according to the FAIS Act (Financial Advisory and Intermediary Services). FAIS governs who can legally give financial advice.
Anyone who wants to give financial advice needs to pass the regulatory exams. In addition, they need to be ‘fit and proper’, which means (among other criteria) that they have industry experience and training, and they operate with integrity. They also have to keep up-to-date with developments in the industry by doing continuous professional development (CPD).
These stringent requirements are in place to protect consumers against dodgy operators, and to ensure that consumers get sound, tailor-made advice.
Not all advisors are the same
There are different types of licensed financial advisors: advisors who help you find a specific product and ‘holistic’ or ‘lifestyle’ advisors.
Agents who help you find a specific product generally work in a specialised field, for example short term insurance or medical aid specialists. When you need assistance getting a policy, they help you find the right one.
Some advisors offer ‘holistic’ or ‘lifestyle’ financial planning. They help you build a comprehensive financial plan to manage your money so you can reach certain goals in life, like planning for your retirement or saving for your kids’ education. This involves a deeper level of engagement and often becomes an ongoing relationship.
Advisors could specialise in one company’s products and only offer that company’s products to clients, they are called tied advisors. Other advisors offer products from multiple companies, they are called independent advisors.
There’s no such thing as a free lunch
When an advisor helps you find a policy, they’ll typically get a commission, which is built into your premium. Legally the fees have to be disclosed in the policy document.
Other advisors might bill on an hourly basis for putting your plan together, although this upfront fee is often waived if you let them execute your financial plan. From then on, they may charge an ongoing fee as a percentage of your investment. You might pay very little in fees in the beginning, but the idea is that the fee will grow as your investment grows.
Why do you pay fees? Well, you’re consulting with a professional who has their own costs, just like a doctor or a lawyer. Given the amount of regulation and compliance, a good deal of fees go towards meeting these requirements. Make sure your chosen advisor is transparent about their fees — you’re entitled to understand what you’re paying for and why.
The bottom line
Don’t get your financial advice from Twitter. Fintwits face no recourse if they spread misinformation or dangerous strategies. Rather choose a licensed financial advisor who is held accountable for the advice they give out, and who can build a plan that is right for you.