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Putting the client first is a winning formula

23 October 2018 Jonathan Faurie
Janet  Hugo

Janet Hugo

If South Africa is going to achieve the goals that government has set when it comes to financial inclusion, there needs to be an investment awakening in the local financial services industry. The role of the Certified Financial Planner (CFP) when it comes to this is very important.

It is important because not every person makes good financial decisions. FAnews spoke to the 2018 Financial Planning Institute of Southern Africa’s (FPI) Financial Planner of the Year – Janet Hugo – to find out a bit more about the mistakes that investors make and the critical role that CFPs will play in the future. 

Repeated mistakes

People make mistakes when it comes to financial decisions. This may be a result of poor advise from family members or that they simply do not understand the nuances that lay behind making a sound financial decision.

This is where the role of the CFP is most important. 

“Choosing the wrong investment for the wrong time frame is the biggest reason people are set up for failure,” says Hugo who is a Director at Stirling Private Clients, “Putting your child’s university fees, which are due next year, into a high risk (inflation + 7) investment is clearly wrong. A high-risk investment usually requires seven to ten years to deliver the expected returns. Equally wrong is placing all your retirement savings into money market account – which is a low risk account – especially when you have a 30-year investment horizon.” 

She adds that many clients choose investment strategies based on hope or fear, and these are the worst reasons to make investment decisions. Logic, facts and plans are important reasons to invest. 

The silent killer

There is no doubt that education is the major reason why certain South Africans do not invest. However, there is another reason why the public either doesn’t invest, or investments do not deliver the expected returns. 

Fees are the silent killers of the South African investment industry. Many industry experts have spoken extensively about this topic pointing out that there needs to be a radical return to the drawing board when it comes to this. 

“Fees can crush an investment plan. Recently, I have seen a low risk global investment plan targeting investment returns of 3%/y with fees to the advisor and platform of 2%/y. These kinds of investment plans are destined to fail,” said Hugo. 

In addition, Hugo adds that fees to exit an investment strategy are also ways that clients face significant punishment. 

Major profilers

In the past, clients sat down with CFPs and gauged the level of trust that they would give these key individuals at the discovery meeting (first meeting). Now, clients use technology to research CFPs to discovery who are the best in the industry. 

Do CFPs profile clients, or potential clients, in a similar way? 

“I find it important to understand my clients’ needs accurately and to identify whether our value proposition is going to satisfy those needs. An ideal client is one where we have identified that we are able to add value and continue to monitor and be a trusted adviser.  I would rather not try mould a someone into becoming an ideal client. In the beginning of a new client relationship our office makes a huge investment in the client during the set-up phase,” says Hugo. 

She adds that clients in South Africa have become very averse to paying fees, whereas in the UK, advisers typically charge for: 

  • a plan (between £200 - £4000);
  • implementation of the plan (up to 3%); and
  • monitoring of investments (up to 1%).

The difference between the South African and UK mindset is something that needs to be considered. 

“There is a growing awareness in our industry that understanding behavioural finance and communicating correctly are necessary skills to build client trust and better outcomes for clients,” says Hugo. 

Greater understanding

We have already established that communication is important when it comes to interacting with clients. 

How far should this go? While government wants to encourage financial literacy, surely, we do not need to be transformed into a nation where every citizen is an investment guru. Do clients need to be educated on every single aspect of the investment industry? 

Hugo points out that it is important for clients to understand a company’s investment philosophy. “Clients prefer to be educated. I believe that a great deal of my fee is earned by interpreting financial planning into the fabric of my clients lives in a language that they can relate to. Predominately, that includes tax planning, estate planning, risk management and investment planning. Stirling Private Clients believes in a risk adjusted, cashflow matched investment strategy that has a clearly defined investment philosophy. When clients understand the basics of this philosophy, and that they pay us to monitor the investments according to the philosophy, they value the peace of mind that they are paying for,” says Hugo. 

She adds that while winning the Financial Planner of the Year Award is a great honour and privilege, she did not do anything differently. She said that she had not adjusted her practice to meet the requirements to be considered for the award. She feels that this approach is what gave her the peace of mind that she was serving her clients in the best way possible. 

Editor’s Thoughts:
The role of CFPs will become very important in the future, particularly if the country makes headway in meeting governments financial inclusion targets. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


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