When people think about financial advisers they often think that only rich people have them. They think that they do not have enough money to invest and that a financial advisers only deals with stock market investments and choosing the best portfolio to invest in. In reality financial advisers add much value than that. Alexander Forbes Financial Planner Rita Cool explains the value of having a financial adviser to guide you in financial decisions.
Research suggests that engaging with a trusted and qualified adviser and making the correct financial planning decisions can add 1.82% per annum to a client’s returns over time, compared to someone without an adviser. This is not due to the adviser’s knowledge on investments and choosing the best portfolios each year. People with financial advisers have a sounding board, an expert that helps them take emotion out of the equation and make decisions based on fact, not on popular thinking or hearsay. People with advisers tend not to make as many changes to their portfolio, as this often destroys value. They also invest for a longer time and in products that suits their needs.
An adviser is there to help you understand financial jargon and to look at your & your family’s goals and how to achieve them. Those goals are not always as far away as retirement but also short term goals like how to best get rid of your debt, save for the dream family holiday and for your children’s education. Financial advice should not be a once off transaction but a journey towards your financial wellbeing.
These days the facts about finance are readily available and people ask why they need to engage an adviser and pay money for the service if they can get the information for free. The information might be available but it can’t take into account your specific requirements. Very often the information is out of date or not correct if read in isolation. The South African financial industry is a fast changing industry with new legislation being implemented almost annually. By getting the correct information and applying it correctly it very often saves you money even after taking into account any advice fees paid.
A good financial adviser is also there in times when things don’t go as planned. When you get retrenched they can help structure both a budget for the period when you are not working as well as to structure your severance payment to maximise the benefit. The adviser is able to advise on facts rather than the emotion during this period. Also, at other life events like divorce or death an adviser can add value by looking at the bigger picture. For example the will that needs to be changed or how to best include your retirement funds in the divorce settlement agreement.
An adviser can help a bereaved spouse to understand the forms and processes that needs to be done and advise family members on what to do with an inheritance. You can’t really measure the value of this when you have ensured that your loved ones are financially secure when you have done proper professional risk and estate planning.
By being with you on your financial journey from the beginning your adviser can lead you through the various financial life stages. From your first job when you need to make a decision on which portfolio to choose and how much you should contribute to when you change jobs. They can advise what the best is for your accumulated retirement funds so you do not lose value or have to pay unnecessary tax.
They will look at your risk cover to see if you are over or under insured so that you are protected in the event of something happening to you or a family member and change the cover as your needs change and your family structure changes over time.
The value of a financial adviser might be priced in money but it goes far beyond the amount you see on your statements. The value should be defined in intangible terms, such as bringing peace of mind or helping you achieve your financial wellbeing.
* “Alpha, Beta and now ... Gamma” David Blanchett and Paul Kaplan - Morningstar