PROGNOSIS is a forecasting of the probable course and outcome while DIAGNOSIS is an answer or solution to a problematic situation.
Last year I was at the chiropractor because of a shoulder injury I had sustained. The chiropractor spent at a lot of time questioning and examining me before making any kind of diagnosis. His medical approach was professional, organised and comprehensive. The solution he provided was not a once off event and besides making a few more trips to see him, I was also given responsibilities towards assisting in my recovery.
Since the introduction of the Financial Advisory Intermediary Services (FAIS)act, the Financial Services Industry has been placed in more or less the same situation. Financial planners are supposed to act professional, with due skill care and diligence and diagnose your financial situation before providing a prognosis for the outcome.
It is unfortunate that I have to report on how poorly this process has been implemented by a large majority of the advisors in the financial services industry. Many of these advisors/brokers/intermediaries are still out there merely to make your situation fit the product that they are trying to sell you as opposed to using the product as a solution to the benefit of the your personal financial goals, values and needs.
Imagine if I went to my chiropractor and he told me that a lengthy diagnosis would be a waste of time and the problem with my shoulder would be easily remedied by slipping a few “wonder pills” which have just recently hit the market by storm. I.E. The prognosis was good and I would be healed in no time at all.
What are the potential problems that one can see arise from this? Firstly, as part of my values and belief system I do not like to take drugs and would like to have been offered an alternative. Secondly, the pain in my shoulder could be related to something else such as an old injury to another part of my body. Thirdly, the drugs may exacerbate the problem causing further complications and other possible side effects and I may have to endure the pain for the rest of my life.
Drawn any parallels yet!? Too often the product salesman will push a product (prognosis) without a clear understanding of why the product is suitable. What are the consequences of not doing a thorough diagnosis of a your financial situation and providing you with a well thought out financial plan? The consequences are numerous, I will touch on just a few…
- Your goals may never be achieved, thus forcing you into a myriad of financial difficulties. E.G. Because there was no clear investment strategy (wrong prognosis) you are forced to depend on your children at retirement.
- You may be sold a product that is not aligned to your value and belief system regarding investments. E.G. You don’t like having your money tied up for long periods of time.
- You have a shortfall in your retirement savings but you’re sold a life policy.
- In spite of your recent divorce your will was not reviewed, the beneficiaries on your policies were not changed, thus upon death your ex-wife would inherit your estate leaving your current wife and children in financial ruin, despite the fact that you were sold a new life policy because you got free gym membership with it.
- No thought may have been given to your need for liquidity leaving your investments tied up in retirement annuity and endowment structures which provide you with little or no liquidity. If exiting the investment is an option then you may be forced to pay exit penalties.
Just like a going for a medical, proper financial planning is a lengthy process if your financial situation is going to be diagnosed properly. A good financial planner (Certified Financial Planner or CFP) would meet with you on at least three occasions before implementing his recommendations. A good financial planner will also meet with you at least once a year to review your financial status as well as give you responsibilities towards assisting in the successful outcome of your plan.
Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing, those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it. Noel Whittaker
Colin Long CFP®
Director KZN
Consolidated Financial Planning (PTY) Ltd.
