“A financial adviser, who gives financial advice without doing a financial needs analysis, is like a doctor who does a diagnosis upon the first handshake!” – Anonymous
The No.1 question financial advisers hear usually is along the lines of: How much should I invest to achieve my financial goals? Even if clients are not asking advisers this specific question, there is no doubt that they are asking it of themselves. The desire to achieve financial security in the future can quickly move beyond basic investment products. A client can begin to wonder what will happen to her kids when she passes away, how much life cover she needs, how much they should be saving towards their retirement, have they saved enough for their children education and whether they have an appropriate estate plan.
What is a financial needs analysis (FNA)?
A qualified financial planner carries out a needs analysis to determine the current state of your finances and your future financial needs. A needs analysis ensures that you are not sold any particular financial product without an overall assessment of your finances and existing financial position. For example, in the past, a salesperson would have been able to sell you a life insurance policy without assessing your affordability and existing policies. Legislation now requires financial service providers to do an FNA for every client. The benefit to the client is that after a needs analysis you will have a holistic view of your finances and would be able to make an informed decision.
The following factors have to be taken into account when you consult a financial adviser and these are included into your FNA:
1. Your income and expenses or your budget.
2. Your current assets and liabilities – this would include assets such as property and liabilities such as your bond repayments.
3. A list of all the current financial products you own such as life insurance policies, funeral policies, and investments.
4. Your current and future financial needs.
5. Your marital status and whether you have dependents or not.
6. Your employment benefits, such as group life assurance, pension fund, and medical aid benefits.
7. Your financial goals.
Once your financial adviser has all the above information, she will then be able to provide you with a report with the below information:
• How much you need to save for your children’s education.
• How much money you need to save for retirement.
• How much you can put away in an investment and an emergency fund.
• How much life cover you need. So that your dependents do not have to dramatically change their lifestyle after your death.
• How much disability insurance you need. If you are unable to work, your policy will also replace all or part of your income.
• How much income protection cover you need so that you are financially covered if you are retrenched.
• How much dread disease cover you need – if you have health issues and end up with, for example, a terminal illness.
The role of a financial adviser
It is worthwhile understanding that an FNA plays an important role in helping you make informed decisions and importantly help you to avoid buying products that are not suitable for your personal circumstances. Financial advisers use the information contained in an FNA report to construct a financial plan for you. A financial plan documents your financial goals and serves as a reference for making informed decisions that suit your circumstances. While you think that you can do all of this yourself, an adviser will help you to figure out the complexities of your financial situation, identify potential gaps in how your finances are structured and create a plan based on the FNA questionnaire.
Head of Investments
Sphelele joined Inkunzi Wealth Group in 2013 and has 9 years’ experience in the investment management industry, having had previously worked for Allan Gray and Regarding Capital Management. Apart from being an active member of our investment team, Sphelele is also responsible for the management of our business. He holds a BCom degree in Economics from the University of Pretoria.