Essential questions to ask when you consult a financial adviser for the first time

26 Feb 2025

If you’re engaging a financial adviser for the first time, consider priorities such as income protection, life cover, an emergency fund and long-term investments.

Question: I left university 10 years ago and have been managing my own investments. After reading your column, I am concerned that this might not have been the wisest move and that my finances might be incorrectly structured, which could cause problems in future.

I want to engage a financial adviser but don’t know what questions to ask, and I’m scared that I’m going to end up being sold unnecessary and expensive products.

Do you have any suggestions?

Answer: There are several moving parts when it comes to setting up a financial plan. I will run through a few of the main issues.

Protect your income

Many people tend to go straight into investments without giving enough thought to their ability to generate the income that will allow them to make future investments. If you have an accident or become ill and are unable to work for an extended period, all your investment plans will grind to a halt.

I would therefore recommend that you check if your company offers you income protector cover that will pay you your salary should you be unable to work.

If you are self-employed, I recommend that you take out this cover yourself.

It is relatively inexpensive given the potential benefit. I recently did a calculation for a 35-year-old earning R50,000 a month. If we assume that her salary increases by 6.5% a year and she gets no promotions, she will have earned R52-million by the time she reaches retirement age at 65. That is the size of the risk you are insuring.

Insure your income

Insurance brokers love to sell you life cover as the commission is generally good and it is paid upfront. The question is, how much cover do you actually need? I work on the basis that you need cover to:

Meet any debts you might have.

Insure your salary until your youngest child is off your hands – usually when the child is 25.

Insider tip

If you don’t need much life cover now, but you see a need for it in the future (you might, for example, want to buy a house or start a family), then you should consider taking out future cover. You get underwritten now, while you are young and healthy, for future cover. You can then take out cover without medical underwriting when you need it in the future. You will pay a small premium, but it could pay dividends if you develop any medical conditions in the future.

Emergency fund

In my opinion, the first bit of saving that you should do is to build up an emergency fund that is worth about three months of your gross income.

The savings should be invested in a portfolio that targets a return of inflation plus 2% and should be readily accessible.

Longer-term investments

Once these structures are in place, you can consider longer-term investments. These include flexible investments like unit trusts, as well as retirement savings like tax-free investments and retirement annuities.

If your tax rate is higher than 30%, then you should consider using structures like endowments or sinking funds to house your long-term unit trust investments. If you do this, your capital gains tax liability will be a lot lower.

When it comes to long-term investments, I recommend that you aim to have a fairly equal split between your discretionary investments and your retirement investments. This will give you a lot more options to structure your income at retirement in the most tax-efficient way.

Going offshore

I would further recommend that you split your flexible investments between South African investments and offshore investments in a foreign currency. This will reduce the risk of having all your assets in South Africa. It will also provide you with access to funds if you wish to spend time overseas.

Many retired people like to spend time with their children and grandchildren living overseas. This can be expensive if the rand is doing badly when you travel. By investing overseas while you build up the funds, you reduce the impact of currency fluctuations.

I would recommend that you discuss these elements of your financial plan with your financial adviser. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected].

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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