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Four reasons to engage a financial adviser

As we count down to the end of 2019, most of us are probably taking stock of the year that was and reviewing how our investments have performed this year. This is also an opportune time to determine if we need to adjust current plans or to rebalance portfolios to achieve financial goals.

What a year it has been! With the uncertainty of the US/China trade war, the ongoing Brexit debacle, the Reserve Bank of Australia’s (RBA) decision to cut rates to a record low of 0.75% and flagging consumer confidence levels, amid many other events, it is certainly a surprise to note that the ASX is up 20% (at time of writing), since the first opening bell of 2019.

It is particularly during these periods of market volatility and ongoing uncertainty where investors see the value of an adviser’s alpha, or added value.

A term coined by Vanguard’s US business in the early 2000s, the framework highlights that the value of good financial advice is much broader than investment selection. It presents tangible strategies to help advisers strengthen their client relationships and define a unique value proposition.

It discourages advisers from basing their value proposition around market timing and their ability to pick the best-performing securities. It encourages the adviser to act as a wealth manager, financial planner and behavioral coach, providing discipline and reason to clients who might sometimes be undisciplined and emotional.

In times of market shocks, an adviser’s experience and stewardship can be particularly valuable to clients because left alone investors can make choices that impair their returns and put at risk their ability to achieve their long-term objectives.

So here are four reasons you should engage a financial adviser:

1. You are a normal human being with emotions

Humans are governed by emotions and it is not surprising that the process of investing can often evoke strong emotions. Abandoning a planned investment strategy can be costly. Equally, holding on to an asset (such as a first home) that was purchased during a particular time in life, even though it makes more sense to sell it, could have a financial cost.

A good adviser will be a behavioral coach of sorts, act as an emotional circuit breaker and help you stick to a disciplined approach to investing.

2. You keep a watchful eye on market commentary and review your investments on a daily basis

The convincing nature of daily market commentary can tempt even the most seasoned of investors into diverting off course, but the truth is that performance-chasing behavior is often detrimental to overall returns. Time and again, many investors exit the market following a period of volatility but reinvest too late to capture any meaningful benefit.

The reality is, investment success is more often driven by time in the market and not timing markets. A good adviser will help you tune out the market noise and support you in maintaining long-term perspective.

3. You don’t have specific investment goals

For many, the biggest long-term financial goal is to save enough money to retire. But that is a broad goal and needs to be defined properly before we can set our investments to work to achieve that goal. A good financial adviser will assess your circumstances and constraints and work with you to define your unique short, medium- and long-term financial goals.

A responsible financial adviser will also set out the risks that your investments are subject to, and create a plan to mitigate them, whilst still achieving your goals.

The value of a good financial adviser often shines through during the process of portfolio construction. The provision of a well-considered investment strategy and asset allocation that is balanced, diversified and meets a client’s goals, is an important way in which advisers add value. Further, the knowledge that the specific asset allocation was a result of careful consideration and not happenstance often serves as an emotional anchor during the spikes of panic in the markets.

A good financial adviser worth their salt will also help you continually redefine your goals and rebalance your investment portfolio as your circumstances change.

4. You may not be sure of all your tax implications

The tax implications of the entirety of our investment portfolio are often an afterthought even for the most sophisticated of investors. Taxes, like costs, inevitably diminish a positive return. A tax-conscious financial adviser will understand the inter-play of the tax implications of each asset class and employ tax-efficient strategies in the construction of an entire investment portfolio.

For some investors, value of an advisor could be difficult to quantify. For others, the lack of confidence to handle their financial matters, time or willingness could mean that working with an adviser buys peace of mind.

But ultimately, it is up to the adviser to convince you that their value is real, and that their value represents more than a number on a client statement.

 

Daniel Reyes is Principal, Investment Management Group at Vanguard Australia, a sponsor of Firstlinks. This article is for general information purposes only and does not consider the circumstances of any individual.

For more articles and papers from Vanguard Investments Australia, please click here.

 

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13 Comments

James

November 13, 2019

What’s a ‘fair price’ to pay a Financial Advisor to advise and manage say a $3M portfolio?

SMSF Trustee

November 13, 2019

James, that depends on exactly what the nature of the advice is and what is going to be involved in managing the portfolio.
Especially the management bit could be complex or simple. If it involves using a platform like AMP's North and switching funds from time to time then that's different to researching and switching stocks that are directly held. Does that bit also include making sure that audit and tax returns are done, or will that be done elsewhere.

I'd say that the all up admin costs of accounting, performance measurement, audit, tax, as well as advising on managers or stocks and looking after the investments on a platform should be anywhere from $10-15k, or 30-50 bps. If the Adviser doesn't do all those things then their fee would be smaller, but you have to pay an accounting firm and adminstration service for the rest.

James

November 13, 2019

Thanks!
I’ll look into it. Much appreciated!

DARYL

November 09, 2019

Advisers who charge a % of FUM rather than the effort they put in seems wrong to me - I think Kram is onto something here

Joel

November 08, 2019

Avoid any adviser who bases the value of their advice on outperformance of investments. However, an adviser can really put you ahead because of the other valid points mentioned in this article. You just don't know what you don't know.

Martin Mulcare

November 07, 2019

Re Daniel's 1st point , you are not only a human being but a dynamic human being, You may need external guidance for managing the financial implications of the changes in your life. Depending on your age that may include: Changes in employment status if not career path; changes in family status; ill health or a disability for you, your parents or another family member; transitions for your children (education or lifestyle); upsizing or downsizing your home; or commitment to a charity or cause.

Dave

November 07, 2019

Sorry, but having been badly dudded by an adviser who I realised afterwards was only interested in putting my money into investments that were making her the largest commissions and who supplied me with a 72 page investment plan whose predicted returns were not matched by the funds previous historical returns was a waste of time.
Invest either in Industry Super or Index ETFs. There is nothing wrong with getting "market returns" at a very low cost.

SMSF Trustee

November 07, 2019

Dave, do you decide never to get married just because one girl you dated was a dud?

Didn't think so.

DaveK

November 07, 2019

Problem is SMSF Trustee, evidence shows that it is not only "one girl", but 98% of "the girls" - have you heard of the Royal Commission?

SMSF Trustee

November 07, 2019

Dave, the Royal Commission came to no such conclusion. In fact the Royal Commission said nothing about all the good advisers out there, who've now been hung out to dry - including by you it seems - because of the bad apples in the bunch. There is NO evidence that the ratio of bad advisers to good is what you've stated.

But, if that was the point you were trying to make then mentioning your own personal experience with one adviser was probably not the best way of going about it. Hence my reaction. If you want a different discussion then make a different argument.

Jimmy

November 07, 2019

Dave, even with a record number of advisers being banned or disciplined by ASIC post the RC, the % of advisers receiving such action is less than other professions such as accountants, lawyers or doctors. Unfortunately there has been no RC into these professions to advertise their shortcomings....imagine if there was...

Dave

November 07, 2019

There seems to be two Daves here. I made the first post but I don’t know who the other poster is.

Kram

November 07, 2019

To quote Jack Bogle, ‘the more they take, the less you make’. You get what you don’t pay for.


 

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