There is no doubt that advice from your financial planner over the last year and next few months will be more vital than ever. CEO, Louis-Rhys Harvey from Berkeley Square Associates gives some insight on what you should be looking for in a good one.
A rookie mistake
Some claim they do not need a financial planner and do a better job themselves – however the market and media commentary on DIY firms such as Hargreaves Lansdowne would suggest otherwise.
The best advisers today understand that their value to clients is not tied to fund picking or investment performance.
To illustrate, the FTSE 100 fell by 26% in early March 2020, which, according to Nucleus data, led some investors to pull out of equities and into historically ‘safe haven’ assets.
The platform provider’s data shows a switch back to more equity-dominated funds in April 2020. However, the FTSE 100 made its biggest recovery of 16% between 23 and 26 March and the S&P 500’s recovery tells a similar story. Some advisers were trying to time the market, which of course they missed.
Advisers who believe they add value by trying to ‘time markets’ and advising their clients accordingly will have learnt a salutary lesson. No doubt a difficult conversation lies ahead with the client about why their advice and ‘expertise’ contributed to locking in losses.
So, what should I be looking for?
While the rest recognise that added value to clients is not tied to fund picking or investment performance, the advice profession as a whole has largely failed in articulating the full value that financial advice can provide.
- Vanguard estimate that advisers can add more than 3% per annum in net returns for clients. They cited behavioural coaching, spending strategy and rebalancing as the largest contributors.
- For Russell Investments the figure is even higher at 4.4% per annum in net returns for clients. Through a combination of preventing behavioural mistakes, financial planning, tax smart advice and rebalancing.
- The International Longevity Centre (ILC) has been running a multi-year study on this topic. Here are their most pertinent conclusions:
– Taking advice has added £2.5bn to people’s savings and investments.
– An ongoing relationship with a financial advisor leads to better financial outcomes. Those clients who received ongoing advice had pension wealth 50% greater than those who took one off advice.
– The benefits of advice outweigh any costs associated with it. Once clients understand this it is no longer seen as expensive,
– The simple fact is those who take advice are likely to be richer in retirement. - The University of Montreal estimated that the savings of an advised client will be 2.73 times larger over a 15-year period compared to a non-advised client. Even over a shorter time frame of five years an advised client would achieve the savings pot 1.58 times the size of a non-advised client.
Great, but what does that mean in English?
Assuming they are qualified, regulated by the FCA and truly independent, you need to understand what type of service you are going to receive.
- Are you going to be sold to, or really advised and looked after?
You’re trusting this person with one of the most important things in your life – your financial wellbeing – so they need to be right for you.
- Do they communicate well, in person and virtually?
- Do they provide a client portal for you to keep track, easily, of your finances?
- Are their fees competitive?
- Do they promise the earth, or are they realistic with their comments and views?
- Are they happy to ‘have a chat’ about your concerns or are they only interested when there is fee on its way?
If you are unsure as to what exactly you are getting for your money, or think you can ‘beat’ those 50% better off for having on going advice, get in touch.
Louis-Rhys Harvey
CEO. Check his website for more information and can be contacted on lrh@bsqa.uk, 0208 1592306.
