It’s a legitimate question and one that we do get asked from time to time. Why wouldn’t you just handle your investments yourself and save the money you would spend on financial advice?
On the face of it, the above questions are quite simple and easy to answer, with some people believing that they can just invest their monies themselves and save the cost of advice. This is true and is a very valid point.
However, the question can be asked in another way: what is the cost of advice? And what is the cost of not getting advice? Let me explain further.
There is absolutely a financial cost of getting advice, because no one works for free and so strategic help will always come at a cost. However, what is the cost of going it alone and not seeking any help? Let’s look at a few types of “value”.
Financial advice is not just about returns on investments. “Return” is often found in the strategic advice that you can receive from your financial planner. For example, there are many options available to some investors to place more funds into superannuation due to the fact that monies in super are taxed at a much lower tax bracket than the average Australian worker. So if your financial planner could help you to place further funds into super via strategies such as “bring forward”, “carry forward” , “salary sacrifice” and others, then that has saved you paying higher levels of tax and is therefore a tangible benefit to you, which would offset the cost of advice. This is just one of many examples of strategic advice.
There is of course also a benefit if your adviser helped you improve the rate of return on your investments, or help you reduce the amount of risk you are taking to get a certain return; would it be worth paying for advice to improve the return long term?
Probably the most important value that an adviser can add, is that of helping you to make the right decisions at the right time. When it comes to your own money, it can be emotional! If we see share markets dropping, we often get anxious about losing our money. But do we make our best decisions when we are in an anxious state? I think not.
Australian Super recently produced some stats in relation to how people reacted when the COVID-19 outbreak hit us earlier this year. More than 76,000 Australian Super members opted to switch their super investment to cash during the period when the markets were at their lowest. They were then out of the market for the period of recovery that we saw in the next few months, essentially crystallising a loss by not riding the wave back up. They may have missed out on a 17% (or more) return, by not having exposure to the share market on the way back up. This loss of return could be tens of thousands of dollars or more!
So, what is it worth to have an adviser in your corner for these periods of instability, to help you make an informed logical decision as opposed to an emotional one?
As you can see the cost of advice is a complex one; paying to have someone in your corner for the good years but more so in the bad, can easily cover the financial cost that we often focus on. Can we help you build your long term nest egg, in the good times and the bad?
Terry Cave, Financial Adviser