Gugu Sidaki | 07 October 2022
Gugu Sidaki is an independent financial planner and co-founder of the financial planning and wealth management practice Wealth Creed. She holds the Certified Financial Planner accreditation and is an author and financial literacy enthusiast.
I often scroll through social media platforms without commenting or posting – just quietly observing how a typical South African interacts with financial products, service providers and personal financial information in general. Every now and again, I also receive messages from people wanting me to tell them what to do about their excess capital or what investment product to use - a very dangerous practice.
While it’s encouraging that people are committing their money to investments, the type of products and information that people are accessing is still a bit of an issue.
The rise of influencers in the personal finance space has done wonders to create an awareness about financial products and the importance of personal financial matters. There are a number of really good personal finance advocates who’ve helped to demystify the world of investments and have managed to connect with consumers in a way that our industry has struggled to do.
This was confirmed in a recent survey conducted by The Collaborative Exchange and The Association of Black Securities and Investment Professionals (ABSIP), ASSUPOL, Momentum and Mianzo Asset Management.
Investors choosing DIY platforms
It revealed a range of market insights as to how black consumers are accumulating savings and their attitudes and access to financial advice – many have access to financial advice yet prefer to direct their own investments using “new age” platforms to access shares and other investments. Social media such as Twitter and TikTok played a strong role in influencing these investment decisions.
While popular personalities on social media can give you factual financial information, you need to be careful they do not inadvertently give you financial advice.
This is an issue because the Financial Advisory and Intermediary Services (FAIS) Act regulates financial products and advice about them. The FAIS Act prescribes that before you can give advice, you must be licensed by the regulator of financial product providers, the Financial Services Conduct Authority (FSCA). Contravention of this can lead to a fine of up to R10m or 10 years’ imprisonment or both – it’s that serious.
What is advice?
What constitutes advice is often a contentious issue and most people don’t know the definition nor the implications of breaching the law on giving advice.
A mere suggestion that someone should take up, cancel or alter a financial product or service in any way is advice, regardless of what someone’s Twitter bio says, and is in contravention of the law if not done in a specific manner by a licensed professional.
Why is it important to deal with a professional?
There is still a lot of mistrust around financial advice. The industry has been marred by rogue and bogus operators who’ve swindled many an unsuspecting consumer.
The survey by the Collaborative Exchange, ABSIP and others confirms that most South Africans who are not using a professional adviser do not know what the role of a financial adviser is. Quick read: The role of a financial adviser
Personal finances are exactly that – personal. What’s appropriate for one person may not necessarily be for the next and there are many things to consider before arriving at a financial solution. Your personal set of circumstances must always be carefully considered before any financial advice can be given.
Having a licensed professional adviser means you are dealing with someone who is competent and has complied with a lot of requirements (and there are plenty!), including those on qualifications and experience, before they can talk to people about their money.
Licensed advisers are also required to have insurance to pay out any claims, in the event that they are found to be negligent during the course of their duties. That means you, as the consumer, are always protected when dealing with a professional. Read more: How can I find a good financial adviser?
What does the financial advice process entail?
If financial advice is given correctly, the process is quite involved. Before advice is given, the following questions must be answered:
Financial planning involves taking a comprehensive look at your financial situation and the measures required to reach your goals. Read more: What should a financial plan include?
Financial planning often delves into multiple areas including savings, investments, tax, retirement, estate planning, insurance and, more recently, psychology.
Once your financial plan is in place, it needs to be maintained regularly, in case there are any changes to your circumstances.
Most importantly, your financial adviser will help keep your behaviour in check to ensure you stick to the plan.
Giving advice, therefore, requires a certain level of specialization, experience, skill and knowing your client. It should not be left to chance (or social media).
New-age investment platforms are great and the ability to DIY your own investments is empowering. Many people do successfully manage their own funds. But, there is no substitute for good advice, and it certainly is not accessible for free on social media.
Ultimately, what you want from the financial advice and planning process is an answer to the question “Will I be ok?”
If the answer is no, your financial adviser can help you work out how best to get on track and stay on track in order to be as ok as possible, under the circumstances. That peace of mind is invaluable and should be entrusted to a professional.
