Charné is a Registered Tax Practitioner and has written several magazine articles with financial related themes since 2006. She is a known finance and tax expert working as an adviser at lemons into lemonade financial planners cc.
When you buy a financial product like a policy or an investment, you can make use of a broker or not. In today’s article, I will focus on individuals like you and me and your choice of buying financial products directly with companies versus through a broker.
Financial products are offered to us by insurance companies or asset management companies.
• Some of these companies only sell their products through brokers and others only directly to the public. Direct products are sold through direct marketing on the telephone.
• Some companies offer their financial products in both ways (directly or through brokers) and then you choose the one you prefer.
• Another choice you have is to make use of a broker for one financial product like your life cover policy, but then use another financial product directly with no broker like your car insurance.
5 reasons why you should consider using a broker:
1. You have a personal relationship with a broker. The relationship will be based on your trust in the broker’s skills, knowledge, integrity and experience. A broker who cares about and communicates with you will know your circumstances well enough to offer advice that suit your unique financial needs and circumstances.
Maybe don't trust a Jordan Belfort type...
Image: Square Space
2. A broker will use his/her skills and knowledge to do a financial needs analysis for you, which will make it clear what kind of financial product you really need. This will help you make an informed decision.
3. A broker helps you with claims and to make sure your policy stays up to date with new offerings or recent product changes.
4. Using a broker means you can choose products from more companies. More options will help you choose a product that suits both your current budget and your future financial objectives equally.
5. It is believed that using a broker makes people stick to financial products and commitments for longer. This may be true if there is open communication, regular contact and if you are both committed to the financial planning process in the long term.
3 tips when you choose to use a broker:
• The broker must be licensed to give advice and/or sell you those products and give you written proof of its registration at the Financial Services Board before you enter into a business relationship.
• If a broker makes you feel stupid for asking questions, then discuss it with your broker or find a new broker.
• Most brokers earn commission and the amount must be declared to you. Commission covers the broker’s travel cost, time to prepare quotes, license and compulsory continuous training fees as well as administration and service fees after the financial product was sold to you. You can negotiate on commission especially with investment products. If the broker charges an hourly or fixed fee for appointments or for setting up a financial plan, make sure that you sign a service contract and that you can afford the fees.
Even though there are many advantages to working with a broker, you may prefer to buy products directly from insurance companies.
5 reasons why you should consider to go it alone
1. You usually save in administration fees and/or commission because there is no broker involved.
2. A direct financial product is more suitable for you, if you are sure that you want a specific policy or investment that is only offered directly and you do not feel the need to compare it with other financial products in the market.
3. This option will suit you if you have limited time available and want to handle the administration on the phone and not through personal appointments.
4. When you have extensive technical knowledge of financial products and services, you will know better what to look out for and what questions to ask the call centre agent and you may not need the expertise or guidance of a broker.
5. You may have a broker on other products that advised you to take out this direct product, because it fits in with the financial plan that broker set up for you.
3 tips in case you decide to go it alone
• Do not fall for a special offer that is only valid today. It is your right as the consumer to think about the information, prepare questions and be called back at a later stage. Discuss it with your partner or get financial advice and do not make impulsive financial decisions.
• After each call, make a note in your diary (or keep a separate phone log of all your calls to companies) of the person’s name and surname you spoke to, the date, the time, the person’s direct telephone number (if available) and a reference number for the call. All calls are recorded and if there is a misunderstanding later with what product you purchased (or whether you purchased it), you can request a copy of the recording.
• Read the policy schedule when you receive it and phone with questions you may have after studying it.
Whether you make use of a broker or not, keep the following 4 principles in mind:
1. It is always good to have a basic understanding of the specific financial product you’re interested in before you make contact with a broker or a company. Do research and prepare a list of questions.
2. Brokers and call centre agents must use language that you understand. They must answer all your questions patiently and thoroughly and if necessary, explain the same principle more than once.
3. You are under no obligation to buy a product from a broker or agent on the first appointment or call, or ever. You will be paying the premiums and it’s your right to understand your financial commitment and be comfortable with both the financial product and the way in which it was offered to you.
Watch out for Part 2 of our series and how to go about getting Home and Household insurance.