By TKay Nthebe
The financial services industry which includes commercial banks, insurance and asset management companies, micro lenders, FinTech and mobile network operators (MNO) provide consumers with financial advice and products that can change the trajectory of their lives (either positively or negatively). It is therefore important to ensure that consumers are receiving the right financial advice.
As we continue to celebrate financial planning month, let’s discuss the type of questions you should ask financial services professionals before receiving financial advice.
- Qualification and industry experience
As discussed in the article “Do you know your rights as a consumer of financial products?” consumers have a right to be treated fairly, provided with correct and honest advice that takes their circumstances into account. When dealing with a professional that is providing financial advice whether it be, a service consultant at a bank, insurance agent or an independent financial planner, it is important to determine the following;
- What qualification do they hold? From which academic institution? Is it accredited?
- How many years of working experience do they have in the industry?
- What is their area of expertise or speciality?
Insurance agents for example are required to complete a certificate of proficiency in long term insurance, while bank service consultants are required to complete a finance related qualification before giving financial advice. Financial planners need to hold a postgraduate diploma in financial planning and be members of professional bodies in Southern Africa. There is Financial Planning Institute (FPI) that is a member of a global body called Financial Planning Standards Board.
- Renumeration – how are they paid?
Renumeration within the financial services industry has traditionally been based on commission – which is a percentage of income on the number of bank accounts opened or a percentage of premium on the insurance policy sold. The risk of this type of renumeration structure is that sales agents or financial planners have previously “pushed sales” to get a commission, instead of providing good financial advice based on client’s needs. As a consumer of financial products, it is your responsibility to ask how the consultant or sales agent is renumerated to ensure you are receiving quality advice and not just buying a financial product.
- Fees – what are the costs?
It is key to ask about the fees or costs before engaging a financial services professional. The Treating Customers Fairly (TCF) framework requires that all fees be disclosed. As a consumer it is important to determine the following.
- How much are the administration fees?
- Are there any additional costs associated with the service?
- Are there any commissions or referral fees?
- Member of professional bodies or regulatory requirements
Providing financial advice requires that professionals are trustworthy, competent, and credible. A great opportunity to build trust and credibility is to belong to a professional body or comply with regulatory requirements. Asking professionals, the following questions can help consumers make informed decisions before receiving financial advice.
- Which professional body do they belong to e.g., Financial Planning Institute (FPI), Lesotho Institute of Chartered Accountants (LIA), Institute of Internal Auditors (IIA) or Insurance Institute of South Africa (IISA)?
- What regulatory requirements should they comply with e.g., Fit and Proper requirements?
The difference between a good or bad financial advice lies in asking the right questions. That responsibility lies with you, the Consumer. Likhomo!
Disclaimer: The views expressed in this article are those of the author.
