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Unlock the real value of your financial planner – and it’s not about the returns

By Gavin Kyte, Regional Sales Manager, Nedgroup Investments

What if we told you that the real value you get from having a financial planner is not necessarily the returns from your investments – but the added benefits of good financial planning and goal-setting?

While it sounds simple, in practice having access to an independent financial planner who will guide you through your financial journey, can have some significant financial benefits in the long term.

The unquantified value of a financial planner

With planner’s help and guidance you’ll be able to avoid the pitfalls of making investment decisions on your own, for example, re-acting impulsively, ignoring the importance of diversification, as well as getting caught up in short-term decision-making like dipping into your retirement savings when you change jobs. 

A financial planner also helps you with the crucial task of creating – and sticking to – a balanced and comprehensive financial plan for your investments. Trying to pick the best-performing funds for their clients is how the role of the financial planner has traditionally been seen. However, it is nearly impossible do this with any real accuracy or consistency. (explain why?) 

Your financial planner cannot dictate the returns on your investments… So where is the value? 

Think of your planner as you would a personal trainer. When you sign up with a trainer you usually have a specific goal in mind – like lose weight or build muscle. Depending on your goal, your personal trainer will come up with an exercise plan and then commit you to attending sessions with him a certain number of times a week or month. You will pay him for each session. Essentially, as you see it, you are paying him/her to help you reach your goal of losing weight or adding muscle. However, over time, if you stick to it, there are likely to be other benefits to you over and above achieving this goal.

For example, by virtue of the fact that you are paying for the sessions, you are more likely to attend them. This, in turn means you are likely to start seeing results just based on the consistency of your attendance. During the sessions your trainer will also give you loads of tips on health and wellbeing. As you feel healthier and stronger, you are more inclined to continue exercising, possibly even increasing the frequency and maybe even end up entering a few races or competitions. You are also more likely to eat better based on the advice you have received over time, the hours of hard work you have put in and how good you are feeling. Eating better and exercising more leads to better overall health and happiness – which of course is very difficult to put a value on.

A financial planner is like a personal trainer – for your finances

By forging a long-term partnership with you, your financial planner will work with you to achieve your personal investment goals, encouraging consistency and time in the market, and helping you to choose products that suit your needs.

Your planner will also have the perspective to see your investments over the long term. Understandably, many people have a short-term planning horizon and a focus on day-to-day expenses. It’s only natural: it’s difficult to plan for 30 years from now when you’re under pressure to keep your daily household budget together. However, as an objective outsider, your financial planner will be able to look past that, see the bigger picture of your investment and retirement goals, and help you formulate a financial plan to meet those goals. This will prevent you from unnecessary financial at a later stage in your life when you should be enjoying the fruits of your hard work and saving – and not worrying about having too little time and too little capital to reach your retirement goals.

A planner should also help you navigate the sometimes-confusing path that your emotions can take you on when investing. While you might make decisions based on emotion, your planner will be independent, calculating and unmoved by scary headlines or by sudden dips or jumps in the market. The below illustration from Morningstar shows how emotions can result in damaging investment behaviour:

Financial planner article 7.1

Over and above that, a qualified financial planner can help you to work with complex tax issues, understand confusing financial jargon, and navigate the often-tricky waters of changing regulations and tax laws. They will also add value by creating a well-balanced, diversified portfolio that takes your risk profile and time horizon into consideration – and they’ll check it regularly to ensure it has the appropriate asset allocation.

All these benefits are incredibly time-consuming, need consistency and a balance of care and impartiality that someone only from the outside can manage by nature, exposure and experience

So, while optimising the performance of your investments over time is an important aspect of having a financial planner - it is certainly not the only aspect worth considering – and possibly, the behavioural benefit you will receive should be the most important consideration of all.

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