The role of a financial advisor or broker in your financial plan

1.   Do you need a financial advisor?

Financial markets are weird. Every time a person sells shares, another buys shares and they both think they are smart! Some of you may think the markets are bad, but still sleep like babies at night. The sad reality is that these jokes certainly touch a nerve or two. We have all been there, trying our hand at the financial markets or DIY our financial planning.

Too often, people (especially those that have some financial expertise) think that their knowledge is sufficient to make sound financial planning and investment decisions. Unfortunately, this is not always the case and the benefits of a financial advisor must not be underestimated.

Have you ever been guilty to any of this?

  • focus on the short-term investment goals and ignore the long-term impact
  • do not properly quantify your financial needs
  • follow the herd
  • buy high, sell low
  • are ill-disciplined and do not set financial goals
  • do not stick to a financial planning strategy
  • listen to the daily “noise” given off by markets, media and react accordingly
  • fall into expensive financial traps because of lack of knowledge e.g. unexpected taxation and saving too little
  • do not view your financial planning affairs holistically
  • do not save and plan for retirement or for wealth transfer to heirs
  • do not protect yourself and your family from the consequences of unexpected family financial catastrophe

One of the biggest reasons for having a financial advisor, especially concerning investments, revolves around behavioral finance. Behavioral finance attempts to identify and understand why people make certain financial decisions by studying their biases. To be frank, investors who lack professional financial guidance are vulnerable to the fear and greed syndrome. Fear of missing out.

2.  What is a financial advisor?

Typically, a financial advisor assesses the financial planning needs of individuals and help them with investments and insurance decisions. They do estate planning for clients and help them with their short, medium and long-term financial planning goals. Many financial advisors in the industry prefer to think of their role more as a financial coach. According to the Financial Planning Institute of South Africa, financial advisors should operate in the following ways:

Establish a professional relationship

Your initial contact with a financial advisor is normally dedicated to establish a clear understanding of your immediate needs and/or concerns as well as getting a firm grasp of what services the financial advisor offers.  

The financial advisor will gather data, including your goals

Having clear goals and providing accurate financial information is key to ensuring a meaningful financial plan. You and the financial advisor must mutually define your personal and financial goals, understanding your timeframe for results and discuss how you feel about risk. The advisor must also determine your level of knowledge.

The financial advisor analyses and evaluates your financial status

With clear goals set and your financial information at hand, your financial advisor is able to “draw a line in the sand” and establish where you are in relation to your goals. Depending on what services you have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies. He must also help you to prioritise certain objectives. It will also include how much risk you can afford to take.

The financial advisor develop and presents financial planning recommendations and/or alternatives

Once your financial information is analyzed, the financial advisor will guide you through the various financial decisions available and make recommendations accordingly. The outcome of the plan is to ensure that you have a financial plan to take you forward with confidence and provide certainty regarding your financial future.

The financial advisor implements the recommendations

Both of you should agree on how the recommendations will be carried out. Your financial advisor may carry out the recommendations or serve as your “coach,” coordinating the whole process with you and other professionals such as attorneys or stockbrokers. The financial advisor must also guide you if you deviate from the recommendations.

The financial advisor monitors and reviews the financial planning recommendations

You and your financial advisor should agree on who will monitor your progress towards your goals. It is important that your plan and any financial solutions that have been implemented should be reviewed on at least an annual basis. This is done to ensure that your plan remains relevant and meaningful in light of any changes in personal or financial circumstances.

3.  How is a financial advisor compensated?

Once again using the Financial Planning Institute of South Africa as a guide, you should expect to remunerate your financial advisor for his or her professional advice.

Where the remuneration of financial advisor is commission on investment or insurance products, law prescribes the maximum commission. However, some financial advisors charge a fee for their services. This fee could be a monthly retainer, a fixed amount for services or a percentage of your investment. There is a growing trend toward financial planning practices that base their businesses on a combined fee and commission model.

How the financial advisor is remunerated is less important than the value that the financial advisor adds for what he or she charges. A financial advisor should be able to demonstrate the value they have added in return for the fee they have charged.

4.  The benefits of a financial advisor

A financial advisor has the expertise to assist you towards reaching your financial planning goals.  The financial advisor has the necessary expertise and knowledge to deal with the following:

  • Insurance
  • Wills
  • Trusts
  • Estate planning
  • Retirement planning
  • Investment planning
  • Monthly budget planning

Like with anything in life, if you want a job done right, you hire a professional to get the best results. Why should it be different when it comes to managing your finances and your personal financial planning?

Get your Personal Financial Plan created and managed by an Absa life insurance financial advisor or broker.

Send an e-mail to or call 011 225 1797 and start your journey of financial planning success.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.