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The value of advice: part 5

This is the fifth in a series of articles where we explain how good financial planning and advice adds value.

Here at Clear Vision FP we are slightly obsessed with ensuring we add value to our clients affairs. However, I appreciate it isn’t always clear what value a good financial planner can add. In my view, there are six key areas that the added value falls under. These are…

  1. Setting and achieving goals;
  2. Investment management;
  3. Efficiencies – cost savings;
  4. Tax planning;
  5. Behavioural coaching;
  6. The ‘other’ stuff.

Today we will be focusing on behavioural coaching and how that can add value.

Behavioural Coaching

Behavioural coaching is all about helping clients to make great decisions in spite of their natural biases. In other words, Helping clients to make the right decisions, when their natural tendency is to do the opposite.

2008 is a great example of where behavioural coaching added huge amounts of value. In the 6 months from May 2007 the FTSE 100 dropped over 26%, whilst emerging markets lost over 40% of their values. An evenly split portfolio of stocks (MSCI Global index) and bonds (Barclays Global Aggregate Hedged to GBP) lost nearly 9% in 6 months.

At this point, most people would want to bail out on stock markets and move the money into cash. However, the next 6 months showed a gain of over 5% for our evenly split portfolio. The next 12 months shows a gain of over 15% for our evenly split portfolio. This means over 2 years, there was an overall gain of nearly 7%, even though the first 6 months had a large loss.

If the portfolio had been switched to cash paying 1.5%, it would still have been sitting on a loss of over 6% after 2 years.

A good financial planner helps you focus on the long-term nature of investing, ensures that you have enough in cash reserves to ride out any stock market storm and stops you switching your investment strategy when things get choppy.

This is particularly pertinent for the current investing environment. With stock markets having a torrid time, the temptation can often be to cash in. But the stock market hasn’t suddenly become a bad long-term investment. The biggest companies in the world haven’t suddenly stopped making profits. In fact, they will continue to innovate, make profit and grow in the long-term.

This is not to say that portfolio’s shouldn’t be changed. However,a catalyst to change should be a change in goals, not short term volatility in the stock market or negative headlines.

There are other biases that exist that financial planners can help with. Things like herd instinct (everyone’s doing it, so should I), confirmation bias (seeking out opinions that validate your own) and negativity bias (a tendency to remember unpleasant experiences over pleasant ones). These can all lead to bad financial decisions.


Every single one of us suffers from behavioural biases.

The key is having someone on your side who is aware of these biases; isn’t emotionally invested in the outcome; who can look at a situation dispassionately and give guidance on the best course of action to reach your goals. This can add value many times over in avoiding making destructive decisions.