Are financial advisers worth it?

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Money is a funny thing. When you don’t have it, you stress about paying the bills; when you do have it, you worry that you’re going to lose it (or be conned out of it), and end up worrying about paying the bills all over again. So, are financial advisers worth it?

It seems that the biggest barrier to accepting good financial advice – is trust.

Without finding someone who you can unreservedly place your resolute and uncompromising trust in, you’ll always find yourself second guessing your money decisions (or theirs) at best. Worst case is you’re too naive to even notice your shortcomings. The unnerving part of it all, is that the results of poor investment decisions are generally only felt many, many years later, or when the unthinkable happens, and payouts don’t match expectations.

The irony is that whether we feel qualified or not, every one of us uses money every day, and for some people, they view this as akin to being qualified at making great money decisions that go beyond just the groceries they put in their shopping trolley.

After all, I brush my teeth twice a day, doesn’t mean I feel any more qualified to attending to my advanced dental needs.

“Trust me…I’m a Financial Adviser”

Part of the problem I suspect, in terms of knowing who to turn to for advice, is the lack of clear distinction as to what a personal financial planner / adviser actually is. My friend Jon can call himself a “Wealth Manager”, doesn’t mean he’s any more qualified to manage your wealth than say Thando or Julie.

To date the industry has relied on regulating the giving of ‘financial advice’ by way of legislation. People are still free to call themselves what they want though. To some extent, advisers have relied on professional qualifications to differentiate themselves from other people claiming to offer the same services. In this way they trust that we will value their credentials, as being an indication as to what their skillset really is. But are financial advisers worth it when we don’t necessarily even know what the credentials mean?

Humility

As mentioned in the article on finding a financial adviser, personal finance DIY doesn’t mean do it ALL yourself. Personal finance DIY is about finding a balance between accepting accountability for your own financial future, but appreciating that you cannot know it all. There are good professionals out there who will help you find an excellent solution for your financial challenges.

If there is one good example of where ‘spending money to make money’ actually holds true and isn’t just a clever sounding thing to say, it’s in paying for good financial advice. Personal financial decisions permeate almost all aspects of our lives.

Whether we can afford a house and how much it will cost over the next 20 years.

Do we have sufficient life cover?

Where are we investing our money?

Will our family be okay is something happens to us?

There are limits though of what financial advisers can and cannot do for you. It’s good to understand these, and to also know your own limits.

So then, are financial advisers worth it? The answer is yes and no…

So what CAN an adviser do for me?

As we said earlier, one Adviser is not necessarily as capable as any other Adviser, so items below would be depend on that adviser having the requisite skillset to assist for that specific need.

  • Advisers can guide you through making optimal use of complex income tax legislation to minimize your tax liability and possibly even enhance your after-tax investment returns.
  • Financial advisers can comprehensively quantify the amount of life insurancedisability cover, and critical illness cover you might need, and advise you on an appropriate product.
  • An adviser can help you select an appropriate medical aid scheme that takes into account your family members’ chronic conditions, and unique needs.
  • Advisers can advise on a great Gap cover, which like a medical aid scheme are all quite different and should be selected on the merits of their characteristics relative to you and your family’s unique medical profiles.
  • Advisers can put together a holistic financial plan, which includes long-term retirement planning, goals, and strategies.
  • A financial adviser can develop an investment strategy specific to your needs.
  • Knowing just how much one needs to retire, need not be an exercise in tea leaves and coin tossing. A good adviser can fairly accurately quantify what your retirement financial needs might be. And quantify in today’s money, just how much you’re required to save to reach that goal.
  • An adviser can rebalance your portfolio on an annual basis and help you stick to your investment plan.
  • Advisers can assist with drawing up your will.
  • Advisers can be engaged to select appropriate investment products for you.
  • Changing jobs, might leave you with a handsome pension or provident fund balance; knowing where to put that until the day you retire, is something that an adviser can advise upon.
  • Debt can easily become insurmountable. A good adviser can assist you with working your way out of a crippling situation.
  • Unnecessarily high investment fees can decimate your long-term investing. If required, an adviser can find lower-cost investment products that meet your investing needs.
  • Risk is not to be avoided if you want any chance at a healthy long-term retirement balance. Rather, risk should be managed. A good adviser will help you manage your investment risk through the appropriate diversification across appropriate asset classes.
  • Short-term insurance can be so complex and it’s sometimes useful to find someone who can explain things to you.
  • If getting money offshore is on your list of personal financial needs, an adviser can help you find investments that are suitable.
  • Watching a chunk of your salary vaporize as PAYE every month is difficult enough to swallow, getting a monthly R1,000 admin tax penalty for not filing your tax return is game over. A registered tax practitioner can submit your tax return, and keep you on the straight and narrow. For those of us who are lazy, or like to know that it’ll get done right the first time, there’s always TaxTim. (use voucher WELLSPENT020)
  • Importantly, advisers act as sounding boards when things get hairy and Donald Trump becomes president.

So what can an adviser NOT do for me?

They cannot guarantee your investment returns. A good adviser will commit to nothing in so far as investment returns go, unless it’s specifically a guaranteed return and that guarantee is from a bona fide financial institution.

If someone claims to know what the market is going to do, you might want to consider finding someone else.

Paying for the invisible

It is also extremely important to remember that in the course of your investing horizon, there exists an infinite number of alternate realties, wherein you made an infinite number of alternate investment decisions as to where you invested your money and how it performed. You’ll never know what any of these might have yielded, and therein lies a noteworthy point of consideration.

We rely on financial advisers, not just to do the measurable and observable items we’ve listed above, but to also help us stick to our well-thought out investment plans. One could only guess as to the effects of a panicked sell when political uncertainty made you question your adviser’s recommendations, only for the situation to casually blow over, leaving just yesterday’s newspaper and your ill-conceived financial blunder as a reminder as to why we have structured and well thought out investment plans in the first place.

Limiting your gauge as to whether or not the fees you paid your adviser was ‘worth it’, relative to the performance of your investment portfolio is not fair. To do this, would require you to equally consider what your investment portfolio might have yielded, had you gone off on your own tangent and succumbed to the human biases that makes being human, one of the biggest obstacles to long-term investing.

So back to the issue of trust

I don’t know why I trusted the orthopedic surgeon to fix my broken leg. We only met briefly while I was high on painkillers, lying on the Emergency Room observation bed – but I did.

I would only see him hours later after surgery, but there was this implicit and assumed level of trust that he was suited to the job and had the requisite level of skill and experience.

Expecting to experience that same level of implied trust for someone calling themselves a “financial adviser” is understandably never going to happen.

Given the broad range of skillsets, qualifications, and proficiencies that financial advisers can have, and with everyone under the sun calling themselves a ‘financial adviser’, ‘rain maker’, and ‘all round good guy’, I can’t tell you who to trust.

I know I have my guy (and I can give you his details), but you may need to interview 2 or 3 people before you find the person you trust. (I say ‘interview’ as you want to ind someone that you can trust, and it may not be the first person you meet)

Finding, and using, a good professional financial adviser can make a huge difference to your finances 20 years from now. You may not want to hand over everything to them. Perhaps just chatting to someone about your current plans and investments is enough, but perhaps you need more help.

So are financial advisers worth it?

For some aspects of your finances, definitely!

For everything, probably not.

Please share your thoughts