Here’s why business owners should work with independent financial advisers

Stian De Witt from NMG Benefits explains why business owners should consider using an independent financial advisor instead of a ‘tied agent’.

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source: Canva premium photos. two clients and their IFA

In today’s complex financial landscape, business owners need more than just insurance policies. They need the comprehensive, unbiased advice that can only come from an Independent Financial Adviser (IFA) to create a holistic financial plan.

Unbiased advice vs. product sales

Understanding the distinction between a ‘tied agent’ and an IFA is important. A tied agent affiliated with a specific company can only sell that company’s products, and cannot charge for advice. In contrast, an IFA can offer advice on a fee basis, without being obligated to sell any particular product in order to earn an income.

This difference is crucial. Imagine visiting a doctor who is paid based on the medication they prescribe, rather than the diagnosis they provide. You would likely receive a lot of unnecessary prescriptions. In the same vein, a tied agent might push products that earn them commission, while an IFA would focus on diagnosing your financial needs and providing unbiased advice. In the case of a client who is concerned about saving for their retirement but who has a high level of interest-bearing debt, for example, an IFA would advise paying the debt off before investing in a retirement plan, even if it means earning less commission in the short-term.

However, when the time is right to discuss investment products, IFAs are not limited to selling the products of a single company; they can mix and match products from various providers to create a financial plan that is tailored to individual needs. IFAs can also manage existing investments for both the business and its owner without incurring unnecessary costs or tax penalties.

What is the difference between an IFA and a CFP®?

An IFA sees a holistic view of a business, often – and ideally – acting as the conductor of the financial orchestra, coordinating with accountants, attorneys, bankers, and even the business’ risk and audit resources, to ensure that all aspects are in harmony.  Certified Financial Planners (CFP®’s)  have furthered their studies and qualified as a professionals through Board Examination (same as a Chartered Accountant) to handle complex estate planning, retirement planning, investment strategy, and intricate business and trust tax matters, both domestically and offshore.

This integrated approach is especially valuable for business owners and trusts who need to balance corporate and personal tax planning, investment strategies, and succession planning. By partnering with CFP®’s, individuals can ensure that their business serves their personal financial goals, whether that be building multi-generational wealth or securing a comfortable retirement.

What to look for when partnering with an IFA

When seeking an CFP®, the FPI website is a good place to start looking. The FPI maintains a database of qualified IFA’s and CFP®’s, and also ensures that these IFAs obtain the requisite 35 continuing professional development (CPD) points every year. (In contrast, agents need just 18 CPD points.)

An IFA should also be able to prove two critical aspects: succession and professional indemnity (PI) cover. Succession planning means that, in the event that an individual IFA with whom a client has a relationship passes away or retires, there is a plan in place to ensure that the client’s matters are always, and continuously, taken care of. PI is a type of insurance that covers policyholders, in this case the IFAs, and in effect their clients, if they are found liable for losing their clients’ money through professional negligence or omissions.

IFAs can tangibly benefit your business

NMG Benefits recently helped a medical specialist save R1.5 million a year in tax by restructuring her practice’s financial set-up. These changes were responsible for her business surviving through the COVID pandemic. She confirmed that if it was not for these changes, then she would have lost everything.

Similarly, partnering with an IFA like those at NMG Benefits, who provide unbiased, comprehensive financial advice that goes beyond mere product sales can help you to integrate and achieve your business and personal financial goals, irrespective of the industry you’re in and the size of your business.

Stian de Witt, Head of Financial Planning at financial advisory firm NMG Benefits
Stian de Witt, Head of Financial Planning at financial advisory firm NMG Benefits