If you're confused about who to speak to, you're not alone.
Warnings, caveats and T's and C's
Confusion in the world of financial roles is more widespread than HIV in Southern Africa. It’s even evident in debt levels in the world and makes me want to drive into the big hole in Kimberley.
Due to the severe complexity and legal impact when you’re talking about an over-regulated industry, I want to be specific about this article, its outcomes and my approach.
- I am opinionated – people that don’t have an opinion don’t get anywhere. You will find my opinion below. I am standing on the outside of the industry and looking in.
- This is my most researched article to date – and I couldn’t get clear answers to my questions from my sources.
- Please check my references at the bottom for more information
- CFP and CFA is a designation, not a job title – yet I do find it necessary to write about certifications, options and what you need to look for when dealing with people in the finances sphere.
I hate financial advertising and marketing
When it comes to money, it all sounds the same to most of us. We think: “I have issues with money! I need help!”. So you get your phone out and Google for help. Naturally, you find the company that is best at advertising. Because they have an advertising budget of (wait for it)…
R 1 000 000 0000 0000 000 000.
Then they try and sell you their products with exorbitant fees.
And you’re more financially screwed than before.
They do have your interest at heart, don’t they?
After this whole debacle, you have no idea whether or not you were in fact helped by a financial advisor, financial planner or a personal finance coach.
This is why I decided to write this post – people need to know where to start. I do not deny that I am biased and no one can deny that many have been left feeling cheated with underperforming assets which people (both financial advisors and ‘friends’ have recommended). It’s also happened to many that they were sold financial products that they don’t need.
Your goal should be learning from these people, not blame shifting.
Be vigilant and take ownership of your investments.
What is a financial advisor?
A financial advisor is someone in a role that can legally give you financial advice. Their purpose should be to help you achieve your financial goals.
To be a financial advisor, you need to be registered to give financial advice. I could give financial advice, but then I would be breaking the law.
These people often specialise in areas, e.g. tax or estate planning. Some financial advisors specialise in financial planning or financial analytics. These have exams that they need to complete to become ‘certified’. A financial advisor can thus become a CFP or CFA (see here).
The Personal Finance Coach (MOO)
Many people are not looking for financial advice. They have issues in their lifestyle, habits and perceptions about money. They look at their bank account at the end of the month and feel like they need to quickly spend the remaining R 2 000 left, or it will disappear into the abyss. And you are like – where the hell did my money go?
A personal finance coach is also known as a money coach, finance coach, property coach or even a debt coach.
Their expertise lies on the day to day money management, money and habits.
They will get you thinking about your money – your day to day spending, money habits and value that this adds to your life. They ask the tough questions but also need to provide some answers on what will happen when you make the decisions that you are doing.
Coaches need to provide information to people so that they can make the decision themselves – the coach doesn’t make it for them. For example, the coach will supply info where someone can learn more about how a retirement annuity works. They can however not supply information about which RA and if the person should invest in RA’s.
I love the quote from Christine Luken, that I am adding it as is (website here):
A financial coach’s goal for you is increased financial literacy and long-term behavior change with your money. A good coach wants you to get to the point where you are a confident and competent money manager.
The CFP and CFA designations
If you have come to a place that you need professional help (I need professional help – and medication), then the next step would be to see a financial planner. You would need to decide which specialisation you require.
Many people are able to navigate their way through the dark world of finances themselves – they have their own financial plan in place, keep their eye on their investments and know the industry.
I am implying here that the financially savvy spend a lot of time learning about their money, their investments and their asset vehicles.
Many people don’t have the time or want input from a professional field.
The Certified Financial Planner (CFP)
CFP’s (certified financial planners) need to be registered with the governing body (link here). People with this designation might specialise in being a financial advisor, wealth manager or financial planner.
They specialise in the long term planning of holistic financial success of their clients. They understand all the elements involved in being financially sound and often times work out a plan for their clients.
The goal of financial planning is to not run out of money when you retire or are medically unfit for work.
As this is a holistic approach, it includes all aspects of a client’s finances, including retirement, estate planning, proper insurance, risk management and so forth.
Financial planners do the following:
- They analyse your money data
- Help you set up goals
- Measure the outcome
If you are filthy rich, why would you be reading this article?
Wealth managers manage the balance sheets of investors – i.e. they manage their clients’ assets and money.
Check here for more details.
Frugal's notes, opinions and caveats
Remember that this is your financial plan. This is your life. You need to take control of your own financial plan. Don’t pay other people money to blame them when things go south.
Many advisors try to sell you things. You need to decide if you actually need those things. Don’t just trust people because they are specialists. Ask hard questions – grill them to make sure that you get what you pay for and never ever just accept what people tell you. Use your own brain and make decisions with them.
The Certified Financial Analyst (CFA)
For someone to be called a CFA, they need to be legally registered. If you’re looking to invest money, a certified financial analyst might be the person you need to speak to. These people understand asset allocation and investing.
Their approach may be either “hands-off and purely transactional or product-focused” (see link here).
Most financial analysts will be able to give you insights into what the market is doing and where they suggest you invest your money. They know the investment world very well and can guide you on what to invest in or invest your money on your behalf.
According to the CFA SA website, the CFA should be customer-focused – they need to keep the customer at the heart of everything they do.
Frugal's notes, opinions and caveats
Financial analysts are exceptionally highly skilled. They invest your money and try to make it more with their knowledge.
Financial advisors: Notes, comments and caveats
Many people, including myself, look for people to blame when things go wrong. Oftentimes the financial advisors bear the brunt of our wrath – and rightfully so at times.
As an investor, I feel that if I give my cash to someone, they need to look after my money. If I am paying them a fee on my entire fund value, surely they need to look after my money.
Sometimes this is not the case. FA’s have many clients. They cannot keep tabs of all their customers’ investments.
Sometimes they do see things that go wrong. In this scenario, they are legally authorised to move your money, if they deem it necessary.
Your FA also needs to disclose all fees before they invest your money, including their commission.
You need to make sure the impact that this will have on your money in the long run.
In South Africa, the industry has historically worked on a percentage of entire fund value. In my opinion, I don’t agree with this but will happily pay for financial advice by the hour.
Can I sue my financial advisor if my investment goes south?
Yeah. But no. But Yeah.
In the past, this has been done on a case by case basis.
In some cases, they can be held liable, yet in other cases it’s not necessarily the case – as can be seen in this article.
Frugal's comments, notes and ranting/raving
Personally, I have questions about who should be liable if an investment does go south.
The FA would often say that they cannot be held liable – as the client needs to check what’s happening in their finances themselves.
I have seen the same issue in the rental property industry – it is the responsibility of the owner to chase the rental agency if the rent is paid late.
Why do we pay the people commission if they don’t take responsibility in growing your investment / doing what we pay them for?
Needless to say, I understand that many people need someone to help them invest due to a lack of self control with their money.
I also note that some FA’s assist their client’s greatly with gaining more control over their money.
I know you cannot compare a CFP, CFA and money coach.
I do think that these terms are flaunted around to make some sound more important than others.
You need to decide what you need at the moment – and if you need any of the above roles in your life.
Many people need someone to help them invest, as they are too lazy, don’t have the knowledge and don’t care if they starve at retirement.
The bottom line is that you need to take control of your money and investments – and not blame others for bad advice, bad planning or bad coaching.
These roles are there to help you grow but you need to be open to this.
So, go now.
Frugal Local runs his own company (Effectify). He does software development and helps small businesses and startups with digital solutions. He enjoys writing articles and simplifying complex things – such as the article you’re reading!