When you don’t know how financial products or services, such as the two-pot retirement system, it is easy to become mistrustful. Unfounded mistrust can cost you, but knowing the basics can help you make the most of what is available. Laura du Preez explains.
Trust is precious and should only be given to those who have earned it – and this is especially true when it comes to your money.
While not everyone purporting to be a financial advisor can be trusted, it is usually better to consult an expert than to attempt to navigate something complex on your own.
Knowing enough to know who to trust is a start.
Safer two-pot withdrawals: Trust the system
Many retirement fund members want to access money in their savings pots under the new two-pot system.
Although funds have provided WhatsApp numbers, email addresses, websites and other digital communication channels, many members chose instead to queue outside the offices of their funds’ administrators once the new system came in, hoping to meet with someone they could trust to guide them through the process.
Meeting someone in person is a good idea if you feel you don’t know enough or don’t trust yourself to make a digital application.
But unless you urgently need your money, it is worth knowing that the two-pot system is governed by law and gives you the right to withdraw from your savings pot, once every tax year, at any time from now.
You don’t have to withdraw immediately – you can trust the system and wait until the queues and teething problems have been ironed out. It will also give you time to get the good guidance from a trustworthy advisor or retirement benefits counsellor.
If you do plan to withdraw from your retirement fund’s newly created savings pot, be sure all your questions are answered and you understand how withdrawals will be taxed and processed.
Being confronted with taxes and charges you did not expect to pay will make you unnecessarily mistrustful.
If you’re still unsure about the tax, the South African Revenue Service has now provided a calculator to let you check what tax will be applied before you apply for a withdrawal.
Safer financial advice: Trust your knowledge
The FAIS or financial advice ombud, John Simpson, advises us to arm ourselves with knowledge as consumers.
Simpson recently explained the new rules of the financial advice ombud’s office, including the rule that it will no longer accept complaints about individuals or entities who are not registered as financial services providers.
This is because when a person falls for a scam, the ombud typically cannot get a response from the promotor. If the ombud’s office accepts such complaints, it creates an expectation that it can assist, when most often it cannot.
These complaints need to be directed to the Financial Services Conduct Authority (FSCA) – the regulator – which can investigate and, if necessary, warn other consumers, he says.
Simpson also said you should never trust an advisor – or anyone selling you a financial product, for that matter – absolutely.
This is not to say that no financial advisor can be trusted, but rather that absolute trust is risky.
You should always buy a financial product or invest in an investment with some basic information about what a product does, how it works, and for whom it is appropriate, he said.
You don’t buy a car without test driving it, Simpson says, even though you don’t understand everything about how the car works. Similarly, you should be more involved in what you are buying and what you are paying for when it comes to financial services.
Safer saving: Trust the right person
Unfounded mistrust in financial services and institutions can prejudice you, Unathi Kamlana, commissioner of the FSCA, highlighted at the regulator’s recent consumer financial education conference.
For example, if you withdraw all your earnings the day it lands in your account because you don’t trust your bank, you put your money at risk.
Kamlana’s stressed that getting some financial education will help you find the most suitable product for you and make the most of it. It can also help you to develop good habits so you are not, for example, spending your entire salary on pay day or falling prey to scams or risky investment schemes.
But there are other safeguards, too.
Knowing the kind of advisor who does deserve your trust and why is key.
Someone you can trust will:
- always be willing and able to explain to you what financial product or service they are offering and why, and what it costs;
- make recommendations that make absolute sense; and
- make recommendations that are the right course for you rather than too good to be true.
They should also be:
- licensed;
- meet certain requirements set out in the FAIS Act that ensure you can contact the advisor again and have records of their advice; and
- have the necessary qualifications to give financial advice.
Read more about how to choose a trustworthy financial advisor here.
Although the ombud’s office does see a few who should not be trusted, they are outnumbered by advisors you can trust. And many go to great lengths to ensure they do deserve your trust. It’s worth seeking out their expertise – as not knowing who to trust can cost you.
Laura du Preez is the editor of Smart About Money.
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