When I talk about the value of a Financial Planner I am speaking about a degree qualified Certified Financial Planner (CFP), and preferably one who is engaged by a FPA Professional Practice firm. I also think it is important that the advisors remuneration not be based on the amount of money invested or the insurance policies being set up – not directly product related.
In itself, just dealing with such a professional provides reassurance around the quality of the products being used, if products are being recommended, and that the purpose of using such products is based on need. It is reassuring that the recommendations provided to you will be with your best interest at heart.
The quality of the products recommended to you does not necessarily equate to the best performing products and in fact performance at any given time may have nothing to do with the quality of the product and the products management team. It is highly unlikely that the top performing investment this year, will be in the top ten at the end of 5 years or 10 years. I know of funds that were sitting on top of the tree at one point and the bottom of the tree soon after and they stayed there for a long time – because of a lack of discipline in the management teams’ processes.
But there is more to this, more to the value of an advisor than simply his or her qualifications and their professional standards, and their investment recommendations or their insurance policy recommendations.
Russell Investments have a chart which they call the Cycle of Market Emotions. It tracks the way we feel when markets go through various parts of their normal market cycle. At various stages for example, we may feel euphoric when markets are booming, and depressed when markets are tanking. We may feel quite hopeful and even optimistic as markets start to come out of the doldrums and so on.
Clients don’t always react to the various stages of the market cycle with clear thinking, and often react emotionally and can risk significant loss if emotions are allowed to dominate and actions are based on these emotions.
During the GFC I had a client who decided, against our recommendations, to withdraw his investment of $500,000, from a fund that had an exposure to growth assets of about 50% and the balance in defensive assets. It was disappointing from my perspective to see him withdraw his funds, but I really felt for him recently when he contacted me and told me it was one of the worse decisions of his life from a financial perspective.
Not only has he missed out on the gains the market and that particular fund have delivered over the years since his withdrawal, but he has locked himself into a world of low term deposit rates and is now doubting every financial decision he makes. This results in him taking no action and the cycle of negative real returns will continue for him.
Other ways in which financial planners offer value, include situations where you need assistance with Centrelink, assistance in making big decisions like buying that investment house or a new car – examining the full impact of these decisions on your long term financial position.
And then there is the day when you decide you had better do something about your retirement planning. Financial Planners have the tools to build financial models for you, developing scenarios based on your various options and as such can model the implications of whatever it is that you would like to do in retirement, and of course they can help you develop strategies to ensure you have adequate funds to enable you to live the lifestyle you have hoped for.
Financial Planners offer great real value for money, by helping you make well informed financial decisions. And they are there when you need them, because that’s what you pay them for.
The information contained herein is general in nature and is not to be considered personal advice.
PETER JORDAN CFP® | MPFP
Senior Financial Strategist
ClearWay Advice and Financial Management is a Corporate Authorised Representative Representative No.473095 of Keystone Partnership Pty Ltd ABN 22 169 650 720, Australian Financial Services License (AFSL) No.466137.