Managing Money:

Why financial planners can help

There is evidence that professional financial advice can make you better off financially, but working with a financial planner shouldn’t stop at managing money. A good adviser puts your life at the centre of the relationship. Here are a few areas where an adviser can add tangible and sometimes intangible value.

Financial planning and attainment of goals

The foundation of any financial plan should be an appropriate insurance and protection plan, and to have legal documents such as wills in place in case of unexpected disaster.

Effective financial planners can add further value using cashflow planning technology to map out a client’s current position and their life goals, and to plan for future income and expenditure – what the future could look like based on potential scenarios.

“The Adviser Advantage” is a study by Envestnet, and it shows that a proper financial planning service can add the equivalent of 0.5 percent per annum. Setting goals is one thing, achieving them is much harder. A financial planner’s job is to keep you on track with achieving your goals. Vanguard’s recent “Assessing the Value of Advice” study found that eight out of 10 investors were 80 percent more likely to hit their goals when working with an adviser.

Emotional value

The same study found that 55 percent of clients indicated that their biggest perception of value was the relationship with a trusted adviser. Good advisers also provide emotional support in times of market uncertainty and in later life planning. In short, clients feel they get the most value when the adviser is prioritising their needs and when they have the peace of mind that they’re on track to meet their financial goals.

Asset allocation and rebalancing

Advisers should have the skills required to create effective investment portfolios, allocating the optimal amount of money to each type of asset and diversifying globally. As assets grow differently over time, advisers rebalance portfolios to ensure they’re still fit for your goals.

Investors who don’t work with an adviser may leave their portfolio unattended for too long, or tinker with it too often. Both can cause portfolios to become imbalanced and unsuitable for their goals.

A Russell Investments’ study, “Value of an Adviser”, found that advisers add up to 1.6 percent to investment returns via effective asset allocation. And Vanguard’s Adviser’s Alpha study found that advisers rebalancing portfolios at the right time can add up to 0.43 percent to investment returns.

Cost

It’s important to be conscious of the ongoing value for money of your investments; gross returns minus total costs equals net return. Evidencebased portfolios backed by academic research can help you achieve the returns of the market at a fraction of the cost of traditional actively managed funds that provide little value for money. Vanguard’s Adviser’s Alpha study reveals that an adviser can add up to 0.92 percent per year in returns by implementing cost-efficient investments.

It also highlights why it’s important to be aware of very high initial investment fees and high ongoing costs as these can have a huge impact on the future value of your money.

Ask Pyrmont about life-centred financial planning. Simon is regulated by both the HK Confederation of Insurance Brokers (011833) and the Securities and Futures Commission (BGY807). 6017 4140 | simonparfitt@pyrmontwm.com | pyrmontwm.com

Investors were 80 percent

more likely to hit their goals when working with

an adviser