The main benefits of professional financial help.
Unfortunately, of recent times there has been no shortage of negative press, comment and sentiment about financial planners but what is the real picture?
Firstly, a 16-year long study by Vanguard found financial planners improve investment performance over time by around 3% net.
This is not insignificant and means that even for small investors, a financial planner will not only pay for themselves but provide the expertise to help navigate and manage two major threats to the success of investment strategies, namely, market volatility and emotion. A win-win for all.
There are many tasks a planner undertakes on your behalf on top of managing investment strategies and they are best summarised as behavioural coaching.
Put simply, behavioural coaching is the way a financial planner manages investor 'emotion' and 'reaction’ to short-term market ‘volatility’ to ensure long term goals are achieved.
A good example of this was the GFC. Planners often talked of the stress of having to explain the correct path under such extreme circumstances. In the end, though, the majority of investors who played the ‘long game’ have recovered well.
This form of control is hard to achieve when an investor is acting alone, it almost always requires teamwork and professional help.
Behavioural coaching centres on four issues:
- A financial plan as the anchor to all actions.
- The setting of clear expectations at the beginning.
- Managing the emotions that accompany periods of market volatility.
- Working together to ensure an effective planner / client relationship rather than simply reacting to market activity.
Behavioural coaching may also involve assisting in areas such as budgeting to save money now to help attain goals later.
There are four components that you and your planner work on together. These are:
Goals
Without goals there can be no planning. However, goals must be realistic and for many investors this is itself difficult because of their starting age. The earlier a person has a financial plan, in most cases, the better the outcomes.
Discipline
Market noise and emotion means decision making is difficult. It may even mean cuts now to help win in the end. Discipline is very hard to maintain on your own so help in this area is a major contributor to attaining long term goals.
Balance / asset allocation
This simply means not putting all your eggs in one basket. Spreading the risk may mean the full extent of up swings aren't gained but it means that the full extent of down swings aren’t either. Balance means 'slow and steady' and we all know how that works out.
Costs of investing
A planner needs to be able to show that they manage the costs in your portfolio, so they can be as low as possible. History shows that on average, lower costs means better performance.
Finally, a financial planner will struggle to help you achieve your goals if they aren't continually kept up to date with any changes in your life. This is one of the most important jobs the financial planner’s clients has.
Peter Graham
BEc, MBA
PlannerWeb / AcctWeb
Hot Issues
- Vaccination rates as they happen around the world
- Approaching the dawn
- Videos and other resources for our clients
- Retirement the ‘number one trigger’ for financial advice
- ‘Unfinished superannuation business’ to watch for in 2021
- Superannuation ideas for 2021
- Retirees need new super investment approach
- Returning expats reminded on tax snares with pensions, investments
- 2020 is coming to an end. Phew!!
- ATO flags key deadlines for early release of super
- Retirement costs rising despite COVID impacts
- Government targets fund expenditure, best interests in new super reforms
- Small SMSFs develop rapidly
- Investing basics for first timers
- Behind the dash in new market listings
- Super, death, and taxes
- What millennials are thinking about investing and retirement
- Capital preservation front of mind for SMSF returns
- Comprehensive list of COVID-19 initiatives and packages.
- Most SMSFs are still poorly diversified
- Related party purchases must be clean
- How your coming tax cut could pay off
- Majority of retirees expected to fall short on retirement savings
- Monitoring super performance critical in light of new measures
- Budget 2020 - A very comprehensive break down.
- Budget 2020 - Fact Sheets
Article archive
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
October - December 2019 archive
- Our Advent calendar for 2019
- The economic and investment outlook for 2020
- You'll be the life of the party when armed with this information!
- Review queries retirement system understanding
- Retirement planning in 15 minutes a day
- Eggs, baskets and diversified SMSF investment strategies
- New opportunities for employees to claim additional superannuation
- ATO provides further trustee instructions on myGovID
- The main benefits of professional financial help.
- Downsizer contributions offer more than meets the eye
- GDP by country since 1800
- 6 new financial videos
- All Australia's vital statistics - October 2019
- Does your mind help or hinder your investment success?
- Traversing a synchronised economic slowdown
- Four key principles that help achieve portfolio success
- A positive pension change with a cash rate twist
- Shares to remain volatile as trade war heats up
- NALI, LRBA measures pass Parliament
- Interest rising in SMSF set-up
- Choosing your investment strategy
- ATO letters indicate a wider SMSF warning
- Australia by the numbers - September 2019
- ATO opens applications for SG exemption