Unless you’re in the top 1% of people that manage their own personal finances, chances are there is significant room to improve how you manage your finances, and particularly, your investments. This is where we believe the value of a financial adviser comes in and the role they play in your investment success.
Most people are completely clueless about how and when they should invest for any goal, let alone a goal as massive as retirement. A financial adviser can guide you through the process, especially in an era where investing is not as simple as choosing between one product and fund anymore.
Research also shows us that advised clients are more satisfied with their investment outcomes than those who don't have advisers. And, advised clients tend to have more realistic return expectations than unadvised clients. It is very pleasing to see these outcomes, which strongly support the value of sound financial advice.
Let’s unpack some value adds your Financial Adviser offers you:
Goal Building. Individual investors have a great deal of trouble establishing appropriate, realistic and manageable goals. Often they don’t even know what they should be concerned with or what they should include as part of a list outlining what they want or need to accomplish. Financial Advisers play an integral role in assisting the client with establishing, monitoring and tracking investment goals.
Investment Policy Statement. A document capturing all you investment details. It also is a communication device that instills structure and discipline. A good adviser will review the IPS annually with client. It’s a great tool in making sure investments have not drifted.
Asset Allocation and Diversification. The exercise of allocating funds among various investment vehicles and asset classes is at the heart of investment management. Asset classes exhibit different market dynamics, and different interaction effects. Thus the allocation of money among asset classes and among investment vehicles within asset classes will have an enormous effect on the performance of an investment portfolio.
Persistence. Establishing items 1, 2 and 3 works as long as everyone stays focused. Various studies demonstrate that certain investment characteristics can and do outperform with persistence over time (even though they can and do under-perform for significant periods).
Risk Management. Investment management looks to “stay the course” through all times and seasons. Proactive Management can make adjustments more effective. It is smarter to protect against market corrections than to try to predict them.
Behavioral Management. We are all prone to behavioral and cognitive biases that impede our progress and inhibit our success. We are flitting hither and yon chasing after the next new thing, idea, strategy or shiny object. Since we frequently act too fast, a good adviser can also slow us down to allow us to “check our work.” A good adviser prevents the panic decisions made at the wrong time for the wrong reasons. Refocusing on pre-established goals keeps us focused and expectations grounded.
Productive Simplicity. Simplicity is a good thing, but with a careful qualifier. Per Einstein, the goal is to make things as simple as possible but no simpler. A competent adviser will know the difference. An adviser will take the time to sit down with you and explain what difficult terms and concepts mean to you and how they may impact your investment portfolio.
Paralysis Analysis. The worst situations many people find themselves in are a state of “decision making paralysis” and do nothing for fear of making the wrong decision. This path will almost always lead to guaranteed failure.
Tax Efficiency and Planning. Experienced money managers routinely argue that you shouldn’t “let the tax tail wag the investment dog.” And it’s true that a poor investment isn’t often salvaged by good tax treatment. But tax efficiency still matters a lot and a good adviser providing the best approaches for dealing with taxes offers tremendous value.
Financial Planning. Each item on this list relates to financial planning in one form or another. Yet consumers often mistake investment management with financial planning. Financial planning is much broader, involving far more than the managing of investments. It involves budgeting, goals, insurance, comprehensive planning for lifestyle, retirement, legacy and more. It also involves crisis prevention and management. Great investment advisers can be undone in a hurry with poor financial planning. A good adviser can work to help individuals formulate, monitor, adjust and meet their personal and financial goals. Real expertise is required to do so.
A last thought...If you’re thinking of investing in shares, unit trusts and other investments, you can go DIY but it will be more risky because these products are harder to understand than savings. There’s also a risk that you might lose money or buy a product that’s not suitable for you because you don’t understand it. So you really need to do your homework.
Ask yourself these questions: Can you afford to lose any money? Do you have the time to do the research? Do you have much experience, knowledge or skills when it comes to investing? If things go wrong, are you comfortable taking responsibility for any bad investing decisions?
If the answer to any of these is ‘No’ then seeking financial advice might be your best option.
Ultimately, a good adviser can and will influence and even change your behavior. In a world where personal financial issues have become increasingly and often unnecessary complex, a good adviser can help you figure out what is true and what isn’t, what works, what matters, what is useful, and what can go wrong. There are few enough people with the expertise sufficient to begin to do that for themselves. Nobody can do it objectively. That’s why good investment advisers are an absolute necessity.
References. www.rivercitybankonline.com; www.moneyadviceservice.org; www.advisorperspectives.com; www.allangray.co.za