Your financial planner should tell you about a new product that has come on the market if it will provide you with better benefits than a product you have. However, it may not be in your best interests to switch to the new product.
If your planner recommends that you cancel an investment or policy and replace it with another one, he or she is obliged, in terms of the Financial Advisory and Intermediary Services (FAIS) Act to provide you with certain information, including:
- The fees and charges of the new product compared with those you are paying currently;
- Any special terms and conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which the benefits of the new product and the existing product will not be provided;
- In the case of an insurance product, how your age and state of health will affect the premiums you will pay on the new product;
- The tax implications of the new and existing products;
- Any penalties or unrecovered expenses that will be deducted from the existing policy or investment or for which you will become liable if you cancel the existing policy or investment;
- How readily you will be able to realise or access any funds invested in the new product;
- Any vested rights, minimum guaranteed benefits or other guarantees, or benefits you will lose as a result of switching products; and
- Any incentive or remuneration your financial planner will receive (directly or indirectly) on both the product you cancel and the new product.
Your planner has to give a record of his advice to the company that provided the product you are cancelling and to the company that provided the product you are buying based on his or her advice.
When you need to ring in the changes
You don’t have to wait for your annual or bi-annual meeting with your adviser to have your financial plan reviewed. If at any stage you feel a review is necessary, there is nothing stopping you from contacting your financial adviser to set up a meeting.
Debbie Netto-Jonker, founder of Netto Financial Services in Cape Town and a former Financial Planner of the Year, provided the following examples of life changes and how they might affect your financial plan:
- If you have a baby, you may need to change your will and the beneficiaries on your life assurance policies. You may also need to set up a savings plan to finance the child’s education.
- If you contact a dread disease (such as cancer), you will need to claim money that may be due from your income replacement or dread disease policy. You will need to ascertain whether you have enough money to cover the medical costs related to your condition.
- If you are considering changing jobs, before you resign or accept a job offer, have your financial planner compare your current package with the one you could get elsewhere. “Many people have no idea of what their actual cost-to-company is and concentrate on their net salary figure, which is the wrong approach,” Netto-Jonker says.
- If you are getting married, your adviser can advise you about the different types of marriage contracts (such as antenuptial and with or without accrual). You will need to change the beneficiaries on your life policies and your will. If applicable, your planner will also do a financial needs analysis for you and your spouse as a dual-income household.
- If you get divorced, you should change the beneficiaries on your life assurance policies and your will as soon as possible after the divorce. Netto-Jonker says many couples neglect to do this, and although wills can be contested if you have a second spouse, it can be a lengthy, costly affair. If a financial planning practice has enough consultants, you can arrange to split your file so that you and your former spouse will consult with different planners after the divorce.
- When your spouse or partner dies, you will need help with life assurance claims and with structuring the proceeds of policy payouts so that you can draw an income. One of the things your planner will assess at your financial review is the liquidity in your estate. “Life assurance is intended to fill a hole when you die. It should be in place to take care of expenses, such as your funeral, or to provide an income for your dependants if they are not already earning their own income. If there is enough money in your estate to take care of your estate costs, you may be able to reduce your life assurance and you do not have to cancel or buy new policies to do this,” Netto-Jonker says.
- This article was first published in Personal Finance newspaper on 27 June, 2009.