Why use a financial planning firm?

By ROBIN POWELL

Over recent weeks we’ve been featuring How to Invest, a new documentary series produced by Regis Media. It was commissioned by Wealth Matters, an evidence-based financial planning firm based in the Home Counties of England. In the sixth and final video in the series we look at the value of financial advice.

Do you really want to do it?

I’m asked about this all the time. Do I really need an adviser? Or can I do it myself? My answer is that it depends. Yes, you probably can do it yourself. But, first of all, do you honestly have the time, the knowhow or the inclination? I, for example, could theoretically re-decorate my house, or put in a new kitchen or bathroom. But I simply don’t have the time. I know I wouldn’t enjoy it and I certainly wouldn’t make a good job of it.

Another factor to consider is the risk of trying to manage without professional advice. For example, what you do with your money, and how you save and invest it, is largely down to the tax regime in the country you live in. Tax rules change all the time and keeping abreast of those changes and what they mean for you and your finances is quite a challenge. The last thing you want to do is to reach retirement and discover that you could have been so much better off if only you’d done this, or not done that, ten or 20 years ago.

But a third and final factor I like to mention is that portfolio management is only one aspect of a good financial adviser’s value proposition. Of course, an adviser can help ensure that you’re investing in the most efficient way possible, and only taking as much risk as you need, and can afford, to take — and no more than you feel comfortable taking. But there’s far more to it than that.

Three types of value

Vanguard likes to emphasise two other dimensions of adviser value alongside portfolio value — namely financial value and emotional value. Let’s look at each of those in turn.

Financial value

Vanguard defines financial value as helping you attain your financial goals. It’s about managing your saving and spending; avoiding unnecessary debt; managing your cash flow; insurance and risk management; tax-efficient charitable giving; estate planning; and end-of-life planning.

Emotional value

Emotional value is essentially the peace of mind that comes with having a robust financial plan. It’s about trust — not just trust in your adviser, but trust in the capital markets to deliver the long-term returns you need. It’s about having confidence in what you’re doing and feeling a sense of accomplishment. And it’s about behavioural coaching — helping you to identify and manage behavioural biases that could otherwise derail your plans.

Which is most important?

Every client is different. What one client values most about having a financial adviser will differ from what other clients deem the most important. But, in general, my own experience is that emotional value is generally the priority for clients, with financial value second and portfolio value third.

Summary

Back to the question then: why use a financial adviser? If it’s just portfolio value you’re looking for, you can probably do without one, especially with all the online tools now available to investors. But if you want financial value and emotional value, you really have to use a financial planning firm.

Here’s the sixth and final part of How to Invest:

The Value of Good Financial Advice

And here’s the full-length documentary: