Somewhere at the back of your mind there is that niggling thought that you should be investing your money a little more wisely – making sure you have enough to retire on, putting aside some money for your kid’s university fees or just saving some money for your dream holiday overseas.

You know this, but by the end of each month you seem to have run out of money and when it comes down to it, you just don’t know where to begin. What makes one investment better than another and, more importantly, what makes an investment right for you?

If this is the case, then it is probably time to find a financial advisor. Whatever your age or income bracket, a financial advisor will be able to help you devise and implement a comprehensive investment plan.

An unqualified 'doctor'?

A good financial advisor will be able to help you plan for your retirement, draft a will, make good investment decisions and save on taxes.

Money, like health, is crucial: in the same way that you would probably hesitate before having a leg amputated by an unqualified ‘doctor’, it is a good idea to check out your financial advisor’s credentials and track record before parting with your hard-earned cash.

How legit is your advisor?

The Financial Advisor and Intermediary Services (FAIS) Act which was passed in 2002 determines a minimum qualification financial advisors must have before practicing. All financial advisors need to be FAIS registered, so before you employ somebody’s services, check that they comply with these regulations. A list of FAIS registered financial advisors can be found at www.fsb.co.za.

While there are a number of qualifications, such as a higher diploma in Financial Planning, which enable you to act as a financial advisor, the highest qualification in the South African industry is the Certified Financial Planner (CFP), which recognises extensive experience and knowledge.

What will it cost you?

Financial advisors make money in one of three ways. Either they charge an hourly rate for their services, or they get paid a commission by the companies they promote or they receive payment through a combination of fees and commission.

While you will ostensibly be ‘paying’ more if you enlist the services of a ‘fee-only’ advisor, this may be the better option. Advisors who work on commission get paid a certain amount by the company they represent for every client that they get to invest in the company. Naturally, this may result in a conflict of interests where the advisor persuades you to invest in ‘his’ company, even if it is not in your best interests.

A further point to be aware of is the fact that the advisor only receives the commission once. This means that once he or she has persuaded you to invest in a particular company, he or she may lose interest in your financial affairs. A fee-based advisor on the other hand would have a continued interest in your investments as they would be paid for continued labour.

When interviewing a potential advisor, ask them to explain how they are compensated. You have a right to know how you are paying for their services and whether they are biased toward any particular companies.

Finding the right advisor

In the next step, you need to establish whether he or she is the right advisor for you; you need to be comfortable with the advisor, and he or she must understand your goals.

Before entrusting anyone with your finances, interview at least three financial advisors to discover who most meets your needs. Arranging to meet the advisor at their office instead of your own home will give you the opportunity to observe the efficiency and professionalism of the office.

Make sure that you cover the key questions in your interview with the prospective advisor.

These are:

  • "How many years have you been in the business?" It is better to opt for someone who has been working for at least five years and who has a solid reputation in the community or industry.

  • "What kind of people do you work with most often?" Obviously this kind of person needs to be similar to you in terms of age, income bracket and goals.

  • "What are your investment methods?" This should cover the type of investments they work with as well as the accessibility and restrictions on these investments. Make sure you understand exactly what they are talking about. If not, this is not the advisor for you.

  • "Must I sign a contract?" If so, enquire what exactly the contract would obligate you to do and how easily can you get out of it? Does it allow the advisor to do anything without your approval?

  • "How do you operate?" This includes how often they will be in contact with you; how often they will review your investments; and whether the advisor will deal with your investments personally or get someone else on the staff to do so.

    There are also a set of questions the advisor must ask you... if he or she doesn't, you need to go elsewhere.

    These are:

  • Your personal information: this includes your employment information, income details and banking details.

  • Asset base information: what property and funds do you own, and what offshore investments do you have.

  • Risk cover: What life cover do you have, dread disease cover and severe illness benefits, amongst others.

    Getting referrals from friends and co-workers is definitely helpful, especially if they have similar financial profiles to you. However, don't simply rely on the advice of others. Do your research and establish a prospective advisor’s credibility for yourself before you commit to any binding investments. And remember, once you’ve settled on an advisor, it is your turn to be questioned and probed…

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