What's the point of Financial Advice?
Written July 2023
You’ve reached a level in your career where disposable income is in abundance, you have a young family, a home with a healthy Loan to Value, a good retirement and healthcare plan at work, and you still have that brokerage account of index funds you continue to build which has served you well. But you feel unsettled. You’ve heard colleagues at work talk about reviewing family finances with their Financial Advisor. What are you missing? Your index funds are tracking global market growth, your retirement plan containing target date funds takes care of itself at a low cost, and you continue to pay down your Mortgage - you're in good shape. Why would you pay fees to an advisor to tell you the time on your own watch. What are the measurable benefits?!
Let’s consider three common misconceptions:
1.) Financial Advice is about investing money and selling products.
Despite the resurgence of the mullet hairstyle, we’re not living in the 80’s. Financial Advice has come a long way since then, and advisors are more qualified, many to Chartered, Certified Financial Planner® and Fiduciary or Consumer Duty Standards. Investing and financial planning have combined, commission-based products have declined, and the industry, across all types of advisers, has become highly regulated, focused on long-term relationships and positive client outcomes. As a successful, affluent family seeking advice, you can expect:
A discovery process based on you and your family’s circumstances.
Personal risk assessment based on the capacity for loss, emergency funds, and your personal attitudes.
Goal-based cash flow modeling to establish how and when you'll reach specific goals such as retirement or funding a college education for your children.
Tax-effective investing based on asset diversification linked to your goals.
Company Stock Incentive Plan review.
Insurance and Healthcare evaluation in conjunction with your workplace benefits.
Estate Planning and Will review.
A regular bespoke review and rebalancing process to monitor your circumstances and goal progress.
2.) Financial Advice is expensive.
Obviously, this depends on who you work with, but the Caveat Emptor principle to deploy is: how much time is my advisor and their firm putting into managing my family's money and personal financial plan? If you’re paying 1% per year just for advice, how much is that in monetary value, and what are you getting? How much is this advice fee relative to the total fees you pay? Warning signs should flash if it’s more than 60%. Ask the advisor to break down the Total Expense Ratio you will pay so you can understand the value and compare it to competitors, but be aware some firms won’t publish total expenses as underlying investment and platform costs may be charged by 3rd party firms.
Time-based advice is becoming popular, but it’s important to understand the merits and drawbacks of this, including the retainer model and the time roundups built into contracts, both being popular amongst time-based advisors. You can easily calculate costs in the context of your needs by comparing them to the standard, asset-based fee model.
3.) Financial Advisors are always looking for new clients.
This might be true of a new advisor starting a new practice, but when engaging a reputable firm operating under a fiduciary or consumer duty standard, it becomes less relevant. 150 family relationships are the maximum for most individual Advisors to enable them to provide the best, bespoke service within their time and capabilities. It’s also important to break down the support functions an Advisor has behind them within their firm.
The Gold Standard
Financial Advice is about trust to structure, protect, and grow your family’s assets proactively with you as your life circumstances unfold. To achieve this, a good Advisor must be independent and know where best to add the most value for each client family they work with. They will focus most of their time on client relationship management as a quarterback and financial coach, which means working with a good back-office team and technology “stack” to support them with investing and financial planning, and administration/operations. As Artificial Intelligence starts to take a more significant role across all global markets, it is these Advisors that will take advantage whilst maintaining strong personal connections with their client families.
