Financial advice – is it worth it or not?
‘WE don’t know what we don’t know’ is a pretty powerful statement.
None more so than underwater electrics, being a pilot, or perhaps an explosives disposal expert, but money is up there too.
According to Ken Blanchard, under his situational leadership model, we begin any task at unconscious incompetent stage (the two-year-old beeping dads car horn believing they are driving) and move through conscious incompetence (stalling in front of the school gates and the prettiest girl in our first lesson), to driving to work and not remembering a moment of the journey - ie unconscious competent.
Financial advice, as well as the above roles, has its risks in the first stage, because anyone knowing they cannot do something (second stage) normally stops and asks the pilot beside them, or at least visits YouTube for a few pointers.
The risks lie in the multiple conflicting viewpoints available on the internet and the introduction of our confirmation biases into the process – whatever you like you tend to move towards and believe.
Social media and the internet also help by sending you more views based on what you are searching for. Confirmation bias and polarisation is inevitable and is dangerous without a challenge with the question – why?
Sure we can all buy life insurance cheaper online, but as an owner of a business, would you realise you could buy a relevant life policy for the same price, but have tax relief on the premiums by putting it through the business?
Would you automatically think to put that plan in trust (a quick form) so as to ensure you don’t pay inheritance tax, and that your family would receive the benefits quickly rather than having to go through expensive probate?
Naturally, an online computer can agree you are a ‘high risk’ investor and create a portfolio, but an independent financial adviser testing your tolerance to what downside risk you are comfortable with, explaining central banks continuous pumping of equity markets, negative interest rates and what that might mean to you, may move you back into the ‘balanced’ section and avoid the awful days when market doldrums arrive.
Similarly, on March 16 this year, we had many investors worried about what the markets may do to their funds, and in response to this column, wrote one explaining where markets were, and what the potential upsides would be.
That column just happened to be written in the very depths of despair and panic when society become emotionally aroused and thus very suggestable, and where our brains become instinctive, less sophisticated and thus binary in their thought process. That is when the steady hand at the tiller adviser becomes valuable.
I take no credit for the four stocks I mentioned in the column averaging over 40 per cent return in the next two days. That was simply winning the lottery because a ticket blew up from the ground and hit me in the face. I just had the sense to know it was a lottery ticket, and do something about it (ie markets were not where they were supposed to be).
Unfortunately, many investors left the market at that stage, had to buy back in at more expensive prices later, or worse still, not at all, and missed the rally.
It is not that every financial adviser is going to add value. Not every adviser moves away from unconscious incompetent, and risk applies when advisers become unconscious competent i.e. they can take their eye off the ball.
That is why you should use an independent financial adviser and one who comes with a recommendation, potentially from your solicitor or accountant, as they will have had great experience dealing with them with other customers.
The International Longevity Centre did a study on non-affluent customers who took financial advice over a five-year period. Ten years later, they were nearly £50,000 better off than those who took no advice.
Worried about the cost? The combined benefits were nearly 2400 per cent better than the actual cost of the advice.
Naturally, we are happy to assist you and there are many professional IFAs out there, all of which will let you know what the cost and benefit of advice will be before you drop into excessive fees.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you require advice call Darren McKeever on 028 6863 2692, email firstname.lastname@example.org or visit www.wwfp.net.