You should treat your financial plan as you would a beautifully landscaped garden. If you don’t attend to your plan regularly and make changes as the seasons of life change, it will become unkempt and overgrown. Which means you and your financial planner need to monitor your financial plan.
The financial planner-client relationship works both ways, and your main responsibility is to be as forthcoming as possible with information about your finances and your personal circumstances. If you fail to do this, your financial plan may end up flawed and you may not be able to realise your goals.
Furthermore, if you incur financial loss because your plan is flawed, you will not be able to seek recourse against your financial planner with the Ombud for Financial Services Providers if the faulty plan was a result of your failure to provide your planner with accurate information.
Your relationship with your planner should be a long-term one, and to this end, you and your planner should meet regularly to review your plan. If your “financial planner” says he will carry out a financial needs analysis for you, sells you a financial product and never meets you again to review your financial plan, you have most likely been taken in by a product-peddler or a salesman.
The aims of reviewing your financial plan regularly are:
- To revisit your financial goals and investment strategy to ensure they are still relevant to your circumstances;
- To check if you are on track to reaching your financial goals – for example, how your investments are faring after a market crash or whether you need to rebalance your investments after a bull market.
Although you are not restricted to making investments through your financial planner, you should reveal the details of all your investments to your planner so that he or she has a complete picture of your asset exposure (how much you are invested in equities, offshore, bonds and property).
If you don’t agree with the recommendations your financial planner has made, you must discuss your reservations with him or her and try to agree on recommendations that are in line with your plan and with which you are comfortable.
If you don’t understand something your planner has recommended, ask your planner to explain his or her recommendations until you do understand them. If you still cannot see eye to eye or understand what your financial planner is recommending, your planner and you may not be suited to each other.
How often your plan is reviewed will depend on the agreement you have drawn up with your financial planner. You should meet at least once a year, although some planners prefer a review every six months. A good planner will contact you to schedule a meeting. You should tell your planner immediately if there have been any significant changes to your circumstances so that he or she can assess whether your plan needs to change.
Good financial planners often send out regular newsletters to keep their clients abreast of changes in legislation or trends in the economy that might affect their investments. However, a newsletter is merely a way of staying in touch with you and does not take the place of an annual review.
Debbie Netto-Jonker, the founder of Netto Financial Services in Cape Town and a former Financial Planner of the Year, says your financial planner should help you interpret all the investment information you receive and prevent you from over-reacting to short-term losses in your portfolio and switching your investments unnecessarily. At your initial consultation, your financial planner should have outlined clearly how he or she wants to be renumerated.
Some planners have a sliding scale of fees, based on how much you have invested through them (assets under management). If your planner wishes to change his or her fee structure, this should be negotiated with you at your review meeting.
Netto-Jonker says the things she and her partners do at review meetings include:
- A catch-up discussion on your general personal circumstances to ascertain any changes, such as a new baby or a change of employment that may affect the family’s finances;
- Take note of specific queries you may have that need to be resolved;
- Confirm your current and future lifestyle requirements;
- Review your financial needs in the event of retirement, death, disability or impairment;
- Revisit your investment portfolio in terms of risk and the appropriate asset allocation;
- Update your pension fund beneficiary nominations;
- Review your overall financial plan;
- Review critical documents, such as your will (checking on beneficiaries, executors and trustees of your estate, and updating any buy-and-sell agreements or any shareholder/partnership agreements in the case of clients who have their own businesses and assessing the impact these agreements may have on their estate plan); and
- Review your estate plan in terms of its structure, tax implications and overall objectives.
“It is important that the review takes place in person rather than over the phone. If is a good idea for advisers to send you a letter after the review meeting indicating the outcome of the meeting and the actions to be taken by the adviser and you,” Netto-Jonker says.
- This article was first published in Personal Finance newspaper on 27 June, 2009.