The truth is that many young people simply don’t need financial advice: the important thing is simply to develop the right habits. But our lives are never simple, and with age comes with greater complexity. In this, the second in a ten-part series, ROBIN POWELL takes a closer look at what that means in practice, and how having a trusted financial adviser can help to give you the clarity you need.
Reason #2: Your life is getting complicated
A common feature of growing older is our lives become more complex — not out of any conscious design but often as a result of circumstances.
This complexity is not necessarily a bad thing. Naturally as we get older, we tend to accumulate assets and liabilities, responsibilities and obligations, interests and commitments. The ornate and multi-faceted nature of life can add to its richness.
But with complexity comes challenges. There are inter-dependencies in systems that mean a change in one area can have unexpected and unpredictable consequences elsewhere. For instance, an individual who buys an illiquid asset as a long-term investment could experience challenges in meeting liabilities that demand regular and predictable cashflows.
In other words, complexity means you have a system with lots of moving parts. Changing something impulsively in one area often necessitates adjustments elsewhere. As complexity is incremental, it can be difficult for the person at the middle to see the bigger picture.
This isn’t a reflection on the individual, mind you, but a reflection of the fact, that none of us — however smart we are and regardless of our credentials — has infinite cognitive capacity to recognise every possible permutation and combination in the material systems that build up organically in our lives.
And remember that as well as the internal drivers of change, there are any number of external influences that can be difficult to keep track of. Regulatory change, tax law amendments, shifting depreciation regimes, technological disruption and rapidly evolving economic environments all can further complicate each individual’s capacity to navigate complexity.
Sharing the cognitive load
This is why complexity is one of the key reasons people seek out a financial planner. Alongside the need to meet distant financial goals, there are the immediate concerns of managing cash flows, meeting existing liabilities, controlling risk and gaining clarity.
Rather than attempting to make predictions, what good advice does is provide a structure that allows for flexibility so that changes in one area of one’s material life do not create unforeseen problems elsewhere. Life-long cash flow modelling, a sensible asset allocation and regular rebalancing are some of the tools to achieve this, alongside a risk management framework.
Of course, uncertainty can never be totally eliminated. We had a reminder of that with the sudden appearance of the COVID-19 pandemic. Externally, laws can change, economies can slow, new technology can upend established ways of doing things; internally, changes in lifestyle arrangements, family circumstances, health and income can force alterations.
What an adviser provides each client is not so much certainty but a set of tools to provide a greater feeling of control, a structure to manage the complexity and a confidence that they’ll be OK. The tangible benefits of better investments, tax structures, cash flow and risk management combine with the intangible benefits of a sense of security and peace of mind.
But dealing with complexity is easier if you grasp what you can and can’t control. No-one can control the ups and downs of markets or the pendulum of regulatory, technological or economic change. We can, however, create a plan that recognises there inevitably will be surprises and that builds into the system ways that allow us to deal with change effectively.
In summary, a good financial planner teaches you how to live with ambiguity, uncertainty and complexity rather than trying to solve every problem at once and predict the future. The adviser helps you to clear away some space amid the growing tangle of your life and provides you with a plan to manage change and complexity.
The outcomes are clarity and confidence. That’s an investment worth making.
ROBIN POWELL is the founding editor of The Evidence-Based Investor. He works as a journalist and consultant specialising in finance and investing, and as a campaigner for a fairer, more transparent asset management industry. He is the founder of Ember Television and Regis Media, and is Head of Client Education for RockWealth and Evidence-Based Advisers.
Missed part 1 in this series? You’ll find it here:
Advising on life’s big changes
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