What exactly does a financial advisor do, and why might you need one?
What is a Financial Advisor?
A financial advisor is a professional who helps individuals and businesses make informed decisions about managing their money. They provide advice and strategies on topics like budgeting, saving, investing, and retirement planning. Their job is to help you navigate the complexities of personal finance and make decisions that align with your financial goals.
Think of it like this: Imagine you’re building a house. While you could try to figure out the best way to lay the foundation, build the walls, and choose the right materials on your own, you might want an expert (like an architect or contractor) to guide you, especially if you’re not sure about the technical details. In the same way, a financial advisor helps you navigate the “building blocks” of your finances.
Why Do You Need a Financial Advisor?
There are several situations where you might need a financial advisor, especially if you feel like your finances are becoming too complex to manage on your own. Here are some key reasons:
1. Planning for Retirement
Why it matters: Retirement might seem far off, but the earlier you start planning for it, the better. In South Africa, many people rely on retirement funds like pension plans, provident funds, and retirement annuities, but these can be confusing.
What a financial advisor does: A financial advisor can help you determine how much you need to save for retirement and recommend strategies to help you reach that goal. They can also help you choose the right retirement products, such as investing in a retirement annuity (RA) or contributing to your company’s pension fund.
Example: If you're in your 30s and want to retire comfortably at 60, a financial advisor can calculate how much you need to contribute each month and suggest ways to make your money grow through investments. They will also help you understand how South Africa’s tax laws impact your savings.
2. Investing and Growing Your Wealth
Why it matters: Investing your money can help it grow over time, but the world of stocks, bonds, and other investment products can be intimidating. With inflation and economic shifts, it’s crucial to invest wisely.
What a financial advisor does: A financial advisor helps you make informed investment decisions based on your risk tolerance, goals, and time horizon. They can recommend asset classes like equities (stocks), fixed income (bonds), or property, and they may help you diversify your portfolio to reduce risk.
Example: If you're saving for your child’s university fees in 10 years, a financial advisor can help you choose investments that balance risk and reward, ensuring that you can meet that goal without losing money due to market downturns.
3. Debt Management
Why it matters: Debt, especially high-interest debt like credit cards or payday loans, can be a major burden on your finances. Managing debt effectively is crucial to maintaining financial health.
What a financial advisor does: A financial advisor helps you create a strategy for paying off debt, especially if you have multiple sources of debt. They can help prioritize which debts to pay off first, create a debt repayment plan, and recommend ways to improve your credit score.
Example: If you have a credit card balance, a car loan, and a personal loan, a financial advisor might suggest consolidating your debts into one loan with a lower interest rate or using the snowball method (paying off the smallest debt first).
4. Tax Planning and Optimization
Why it matters: In South Africa, paying taxes is part of life, but you don’t have to pay more than you owe. Tax planning can help you reduce your tax liability and make your money work harder for you.
What a financial advisor does: They can recommend tax-efficient investment strategies, such as investing in tax-free savings accounts (TFSA) or retirement annuities, which offer tax deductions. They will also help you understand any tax credits or deductions you’re eligible for and help you minimize tax liabilities.
Example: If you contribute to a retirement annuity, you can reduce your taxable income, which means you’ll pay less tax. A financial advisor can guide you on how to structure your finances to make the most of these tax benefits.
5. Goal Setting and Financial Planning
Why it matters: Whether you want to buy a home, send your children to a private school, or start a business, setting clear financial goals is essential for achieving them.
What a financial advisor does: A financial advisor helps you define your short- and long-term goals, creates a comprehensive financial plan, and outlines the steps needed to achieve those goals. They can also adjust the plan over time as your financial situation changes.
Example: If you want to buy a house in five years, a financial advisor can help you calculate how much you need to save for a deposit, recommend the best savings vehicles (like a high-interest savings account or fixed deposits), and ensure you're on track.
6. Family and Estate Planning
Why it matters: Estate planning is essential to ensure your assets are passed on to your loved ones according to your wishes, while minimizing inheritance tax. This is especially important in South Africa, where estate duty taxes can be significant.
What a financial advisor does: A financial advisor works with an estate planner or lawyer to help you structure your will, manage trusts, and ensure that your estate is passed on efficiently and according to your wishes.
Example: If you have children and want to ensure they’re taken care of after you pass, a financial advisor can help you set up a trust or life insurance policy to provide for them. They’ll also help you understand how to minimize estate duty taxes.
While you can manage your finances on your own, a financial advisor can be invaluable when it comes to navigating more complex financial decisions. Whether you're planning for retirement, investing for the future, managing debt, or creating a comprehensive financial plan, they can guide you toward making informed, strategic decisions that align with your goals.
In South Africa, many people face unique financial challenges, such as managing debt, saving for retirement with limited resources, or navigating the tax system. A financial advisor can provide much-needed expertise and help you achieve financial stability and success.
Questions after the interview:
At the end of an interview there is usually an opportunity where you can ask any questions you might have. This is a great opportunity to show the interviewer that you are interested in the position as well as the company. It is a good idea to prepare a few questions before the interview – this can be done while you are doing research on the company.
Your questions should show the interviewer that you are a good candidate for the position. Try and avoid questions that are based on your personal needs and preferences, for instance:
- How much leave will I get in a year?
- Will I be considered for promotion in my first year?
- When will I get an increase?
- What time can I leave in the afternoon?
These questions are inappropriate at this stage and will probably raise concerns on the side of the interviewer. Should you be the successful candidate then all these questions will be answered in your letter of appointment so don’t waste this opportunity by asking these basic questions.
If the position is an entry level job or very junior then you are welcome to ask questions in line with the position, for instance:
- Why did the previous person leave the position?
- What would the successful person be tasked to do in a typical day?
- How does this position fit into the department and / or company?
- Could you explain the company structure to me?
- Is there any further education assistance or support?
If the position is more senior then you can prepare question around the following themes:
- current issues that will face the successful candidate;
- inter-personal challenges in the department;
- any process, technology or people challenges that needs to be attended to urgently;
- key result areas that need urgent attention in the first few months;
The above information should get you started. Prepare a few questions so that you can show your worth. Good luck with your interview!
