Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

There are several things you can do to get a measure of peace of mind.

1. Look at your adviser’s letter of introduction 

This letter of introduction is the first document that you need to sign before a financial adviser can give you advice.  

The letter of introduction should contain the following information:

• The registered name and registration number of the financial services provider (FSP) that your adviser is part of;
• Whether there is professional indemnity insurance in place;
• The categories of business that the adviser is qualified to give you advice on; and
• Who you can contact should you wish to lodge a complaint.

This document can help you to check whether the financial adviser is giving advice on investments that he or she is not qualified to advise on.   

I came across a situation where an insurance salesman recommended to a retired person that she invest a large chunk of her savings in a share that was going to be listed on the London Stock Exchange. He told her that this investment should give a return of more than 50% in six months. 

The first warning light is the massive return over such a short period – you do not get good returns like that without incurring any risk. Remember, if the returns are way out of line with what you can typically get in the market, you need to do a lot more research on the background of the adviser and the risks involved in the investment. 

As part of the background check on the adviser, you can look at the letter of introduction and see whether the adviser is indeed qualified and authorised to provide advice on shares. In this case, the adviser was not authorised to offer that level of advice, so an examination of the letter of introduction would have raised another red flag. 

The pensioner came to me for a second opinion and I advised her not to proceed with this transaction. A few months later, when the company listed, the shares were suspended after being listed on the London Stock Exchange. Luckily the pensioner’s money was not lost. However, the savings of many others were. 

2. Check whether the financial adviser and FSP are registered at the Financial Sector Conduct Authority 

The Financial Sector Conduct Authority (FSCA) accredits any provider and any financial adviser. It regularly suspends companies and advisers whose business practices are reckless. 

Each financial adviser is listed on this website. Here you can check what products he or she is authorised to sell.  

If a brokerage or FSP has been found guilty of any misconduct or dubious business practices, they would not appear on this database.

To see whether your financial adviser is on the database, do the following: 

 Log on to https://www.fsca.co.za/Fais/Search_FSP.htm. Type in the name of the brokerage that your adviser is part of (eg Succession). Check that the name and registration number on the FSCA database are the same as those on the letter of introduction. 

Click on Representatives and type in your adviser’s surname (eg. Meiring). You should be able to see your adviser, as well as a list of all the items he or she is qualified to sell. If your adviser does not appear on this list, be very careful about making any investments. 

3. Make sure you have online access to your investments 

If your adviser is investing your money with another company, you must get online access to the investment at that company. Do not rely on consolidated reports compiled by the adviser. All the decent investment companies give investors online access to their investment. You do not need to go through your adviser to get access to this. 

Get a second opinion 

Each financial adviser has his or her own set of skills. Some are good at ensuring that all your risks are covered, others are good at helping you to build wealth, while others are skilled at helping you to convert your wealth into income streams when you retire. 

It sometimes helps to get a fresh set of eyes to look at your financial arrangements. 

Many financial advisers will offer a second opinion on your financial structures for a fee. This could certainly be something worth considering. It will give you peace of mind that you are on the correct track or highlight any shortcomings. Either way, it will be money well spent.