As with other professions, financial advisers haven’t enjoyed the greatest reputation. A large part of the lack of trust was the way advisers were remunerated for the work they carried out. High rates of commissions set by pension providers and insurance companies motivated advisers to sell products that were often (but not always) at odds with their client’s actual needs. This conflict combined with historically less stringent regulatory processes led to a number of high profile miss-selling scandals (endowments and pension transfers to name just two).
Most advisers were/are ethical in their motivations and did/do work in the best interests of their clients but negative media coverage did a lot to undermine trust in the advisory sector as a whole. It’s comparable to football hooligans of the 70s and 80s: the few ruined it for the many.
Not only is the lack of trust unfortunate and disappointing (though also, to an extent, understanding) it is also to the cost of many consumers who may benefit from financial advice but have turned away from it for fear of being ripped off.
A positive factor in the rise of the internet and the availability of direct-to-consumer investment platforms has been a reduction in the cost of investing. It has also enabled thousands to successfully achieve their personal financial ambitions. However, when you are dealing with your hard-earned wealth and require it to provide financial independence and security, mistakes born from naivety and ignorance can have serious long-term implications.
Fortunately, a combination of regulatory changes and a desire for change from within the advisory community has greatly improved the quality and reliability of advice. And, with a quorum of younger next generation planners coming through the future for the profession (and those they advise) is bright.
So, if you are thinking about seeking financial advice but have reservations about the quality and appropriateness of advice you will receive here are 10 things about good financial advice that might surprise you:
1. Commission was banned for pension and investment products in 2013 breaking the conflict of interest that existed between advice and adviser remuneration.
2. A good financial planner cares more for you than your money. This will be evident in the nature of the questions you are asked during an initial discussion.
3. A good financial planner will empathize with your current situation, not criticize it. We’ve all made mistakes in the past or not been as active as we might have wished in certain aspects of our lives. A holier-than-though adviser is not being true to themselves as much as they aren’t being truthful to you.
4. It’s not about ”how much return can you get me?”. A good financial adviser will focus on the return needed to achieve your unique goals and objectives rather than chasing market-beating performance.
5. In addition to the previous point, the greatest influence on your long-term financial success is how much you invest over how long a period. A good financial adviser will encourage the appropriate behaviours.
6. It’s about the relationship, not a one-off sale. A good adviser knows that a relationship is symbiotic: if they look after their clients, their clients will be loyal and recommend others to them.
7. There is no such thing as ’best’ funds. Investors, fuelled by the media and the investment houses’ marketing departments, can succumb to the mistaken belief that they need to invest in the ‘best funds’. There is no such thing, just the most appropriate fund for a given objective. A good financial adviser will help you invest in the most appropriate funds for you.
8. There is no correlation between higher costs and higher returns. Further to the previous point, investment houses spend a lot on media campaigns to attract money to their funds, from which they take their fees. If you believe the marketing you will believe the more you pay the better value you get. Investment management is an anomaly in this regard: higher costs does not equate to greater value. A good adviser will provide value by lowering the cost of investing for you.
9. You’ll come with a specific problem (“my pension isn’t doing very well”) but leave with greater clarity and a bigger picture mindset. As with a GP, a good financial adviser will take the time to listen to your issues and take a holistic approach to make sure they get to the root of the issue and provide lasting solutions. After all, just as nobody needs a drill, what they need is a hole to hang a picture; nobody needs a pension. What they need is sufficient wealth to provide financial independence and security.
10. You might not get the news you want to hear but you will get the news you need to hear.
As I say, the future of the financial advice profession is bright. By engaging with a good adviser you can make sure your future is equally bright.
If you would like to know how you can benefit from good quality financial advice, contact me.