This is the second in a series of articles attempting to 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…
- Setting and achieving goals;
- Investment management;
- Efficiencies – cost savings;
- Tax planning;
- Behavioural coaching;
- The ‘other’ stuff.
Today we will be focusing on investment management and how that can add value.
This is often what people think about when they picture what a financial planner, financial adviser or wealth manager does. The perception is that we know where the markets are going and which fund managers are going to deliver a stellar return. Although these aren’t true (no matter what you are told) there is massive value that can be added through investment management.
A good financial planner will provide expert guidance on building a portfolio that is designed to meet your goals. This involves establishing the mix between risky assets (equities and property) and less risky assets (bonds and cash). The balance between these assets will depend on a number of factors. This will include the amount of risk that the client is comfortable with, as well as how much risk the client needs to take in order to meet their goals.
In building the portfolio, a good financial planner will make sure that the portfolio is diversified, avoids bad (and bogus) investments and captures the return available from each asset class in the most efficient way possible.
There are many differing views on the best way to do this. My own view is that every decision should be able to be explained by robust academic evidence. For instance, the argument that a fund manager is better at picking high performing companies because of track record doesn’t hold up to the evidence available.
The task will then be to keep the portfolio under review on an ongoing basis, make sure the strategy still fits to the client goals, review the holdings to ensure they are still the best option to fulfil the job required and re-balance the asset allocation to ensure it remains on track.
A lot of investment management is as much about helping you avoid making bad decisions as well as helping you make good decisions. Bad decisions like chasing a fad or cashing in when the market drops can be financially fatal. Good investment management protects you from that.
In essence, the main benefit of investment management in financial planning is to give you the best chance of achieving your goals; whilst protecting you from bad decisions.