How to Choose a Financial Advisor: The Two Questions That Matter Most

How Financial Advisors Actually Get Paid

Start here, because how an advisor is paid shapes almost everything that follows: the products they lean towards, how often they suggest changes, and whose problem they’re really solving. There are three broad models in South Africa, and the differences matter more than the marketing lets on.

Commission. The advisor is paid by the product provider when you buy a product — an endowment, a life policy, a retirement annuity. You often don’t see the payment directly, because it’s built into the product’s costs. Commission is still permitted on several product types, and plenty of competent, honest advisors work this way. The structural issue is simple to state: when the income only arrives if a sale happens, the advice and the sale become hard to separate. It can also reward activity — a new policy every few years — over patience.

A percentage of assets. Here the advisor charges an annual fee calculated as a percentage of the money they manage for you, commonly somewhere around 0.5% to 1% a year, though it varies. This is a genuine improvement on commission: the advisor is paid by you, not the product house, and their income only rises if your portfolio grows. But it carries its own quieter conflicts. An advisor paid on assets under management has a financial reason to prefer that your money stays invested with them, which can colour advice on paying off your bond, drawing an income, helping a child onto the property ladder, or moving capital offshore — each of which shrinks the asset base the fee is charged on. On a large portfolio the rand gap between a percentage and a flat fee is easy to underestimate; a real family-office example shows how far apart the two drift over time.

A flat fee. The advisor charges a set fee for the work, agreed up front, invoiced directly or drawn from a portfolio, and not linked to which products you hold or how much you invest. Because the fee doesn’t move with your assets or your product choices, most of the built-in incentives fall away. It isn’t automatically cheaper — for a smaller portfolio a flat fee can work out higher than a percentage — but it’s usually the most transparent, and the easiest to reconcile with advice given purely on the merits. It’s the flat-fee model we chose at Henceforward, for precisely that reason.

The point isn’t that one model is virtuous and the others corrupt. It’s that each comes with a built-in incentive, and you’re entitled to know which one is sitting across the table from you.

Independent, or Tied to a Product House?

The second question is who the advisor works for. An independent advisor can recommend products and funds from across the market and isn’t obliged to favour any one provider. A tied agent represents a single product house and can only sell from that stable, no matter how the business card reads.

Neither arrangement is inherently wrong, and a tied agent’s products may well be perfectly good. But the distinction changes the nature of the advice. If someone can only offer one company’s solutions, then the answer to “what should I do?” is always going to come from one shelf. The risk isn’t dishonesty; it’s a narrowed field of view. And it isn’t always obvious from the outside — a tied agency can carry an independent-sounding brand, and the person in front of you may be genuinely unaware of how constrained their options are.

The complication worth knowing: the reforms mentioned earlier were meant to make advisors declare plainly whether they’re independent or effectively acting for a product supplier. Until that’s fully in force, the cleanest way to find out is to ask directly, and to listen for a straight answer.

When a Prestigious Name Does the Selling

There’s a particular version of this worth naming, because it catches people who are otherwise careful with money. A well-known private bank — the kind with a hushed reception and a globally recognised name — carries a certain status, and status is reassuring. If you’re being looked after by an institution that only takes clients above a certain threshold, it feels reasonable to assume the advice must be as impressive as the brand.

It isn’t always. Some of the clients who have gained the most from a fresh look at their affairs came to us from exactly these institutions — prestigious local private banks, and in one case a large Swiss one. What they found, once someone went through the detail with them, was sobering: fees that were high and surprisingly hard to pin down, performance that was unremarkable once those fees were stripped out, and a relationship that, on closer inspection, had been more about placing products than giving advice. The prestige was real. The value was harder to find.

None of this makes those institutions dishonest, and plenty of people are well served by them. The point is narrower: a prestigious name is not a substitute for the questions in this guide. If anything, the comfort of the brand can make people less likely to ask them — which is exactly when they matter most. Status is not disclosure, and reputation is not performance. The bigger the name, the more worth asking these questions tend to be.

Beware the Advisor Who Drives a Ferrari

Here’s a cheaper version of the same lesson, and a more entertaining one. In parts of this industry, the pressure to look successful is intense — the German sports car in the visitors’ bay, the conspicuous watch, the tailored everything. The unspoken pitch is simple: I’m visibly wealthy, so I must be good with money, so you should trust me with yours.

It’s worth pausing on that logic, because it runs backwards. An advisor’s personal wealth doesn’t come from being brilliant at growing your money — it comes from fees and commissions, which is to say, from clients. A flashy lifestyle may be evidence of excellent selling rather than excellent advising. And at the far end of the spectrum, it’s a genuine warning sign: some of the most audacious investment frauds in recent South African memory were run by people who looked every inch the picture of success, right up until the money turned out not to be there. The advisor worth having is the one focused on making you wealthy, not on showing you how wealthy they are.

Whose Interest the Law Puts First

South African financial advisors aren’t unregulated. They operate under the FAIS Act and its code of conduct, which requires them to give suitable advice and to act with due care in the client’s interest. Any legitimate advisor is authorised through a licensed Financial Services Provider, and you’re entitled to know the FSP they fall under.

That framework does real work, but it’s worth being clear-eyed about its limits. A best-interest standard sits uneasily alongside commission, because the law asks the advisor to serve you while the payment structure quietly pulls the other way. Regulation sets a floor, not a ceiling. It tells you an advisor mustn’t sell you something plainly unsuitable; it doesn’t guarantee you’re getting their best thinking, unclouded by how they’re paid. That gap — between what’s merely suitable and what’s genuinely in your interest — is exactly where the fee and independence questions earn their keep.

Qualifications, and What the Letters Mean

Credentials aren’t everything, but they’re a reasonable proxy for how seriously someone takes the craft. The one worth knowing is the CFP® — Certified Financial Planner — the leading professional designation in South African financial planning, awarded by the Financial Planning Institute. It requires a postgraduate-level qualification, examinations, relevant experience, and ongoing professional development. It isn’t a guarantee of good advice, but it signals a practitioner who has met a recognised standard and is accountable to a professional body.

Two related checks are quick and telling. First, is the person or firm properly authorised? You can confirm an FSP’s licence with the regulator, and a reputable advisor won’t mind you doing so. Second, ask what happens beyond the investments. A good advisor thinks about tax, retirement structure, estate, and cash flow together, not just the portfolio. If the conversation only ever comes back to products and returns, that tells you something about how they see the job. The best advisors coordinate the whole picture rather than optimising one corner of it.

The Questions to Actually Ask

All of the above collapses into a short list of questions you can put to any advisor before you commit. None of them is rude. A good advisor will answer each one plainly and without defensiveness, and the ones who bristle have told you what you needed to know.

• How exactly are you paid, and by whom? Listen for a clear, complete answer. “It doesn’t cost you anything” is not one — someone is always paying.
• Are you independent, or tied to a product provider? If independent, across how much of the market can you actually advise?
• Do you earn any commission, or any income from the products you recommend? This cuts straight through the “fee-based” fog.
• If you use model portfolios or in-house funds, what do they cost me — and do you earn anything from them? Many advisors now run client money through a discretionary fund manager (DFM) or their own funds. The underlying DFM fee is often somewhere around 0.2% to 0.3% a year; ask whether you’re charged that at cost or with a margin added on top, and whether the firm (or a related division) earns a separate management fee on any of its own funds you’re placed in. Either can sit on top of the advice fee you already pay, and neither is always spelled out.
• Which FSP are you authorised under, and are you a CFP®? Both are easy to verify, and easy answers to give.
• What do you do beyond managing investments? Tax, estate, retirement structure, cash flow — or just the portfolio?
• What happens to my plan if you’re unavailable, or if I want to leave? Continuity, who else knows your situation, and how easily you can move your money elsewhere.
• Can you put your fees in writing, in Rands? A percentage sounds small; the same figure in Rands, compounded over the years you’ll be a client, rarely does.

You’re not interviewing them to catch anyone out. You’re establishing, before any money moves, whether this is a person whose incentives line up with yours. That single alignment does more for your long-term outcome than almost any product decision that follows.