Financial advisers can fulfil different roles for different clients. Whether you need (or want?) a financial adviser is something only you can answer.
You may be thinking you want a financial adviser because:
You want to get money sorted but you can't summon the energy, or are just too damn busy with work/life to do the organizing, research, learning related to doing so?
Perhaps you don't know where to start, or you find money matters overall stressful, or find the process of ‘getting financially sorted’ intimidating.
Maybe you struggle with making financial goals, or worse, keeping to them. Much like a personal trainer at the gym an adviser can keep you accountable.
What can a financial advisor do for you?
Building wealth is something that takes time. As such my view is that a financial adviser should be a long-term relationship i.e., they should be with you throughout your personal financial journey - helping you at various stages and keeping you on track.
In simple terms I’d categorize what financial advisors can do for you as the following:
· Getting you into the right investments for you
· Getting you growing those investments
· Keeping you in those investments when everything is doom and gloom
· Helping you avoiding pitfalls along the way
· And then finally, pushing you to spend those investments in accordance with your goals.
Getting you into the right investments.
Is it overwhelming choosing a Kiwisaver? Two years ago, there was over 25 Kiwisaver providers in NZ with more than 300 funds between them. Now? Likely even more. What risk profile are you? What does that mean? Likely really mean? Is ethical investment important to you? Does the fund you are in have long-term good performance? Have they even been around long enough to have a long-term track record? Are you confident what you’re invested in will help you reach your goals?
This is something a financial advisor can help with and normally comprises the basis of the initial part of the relationship. Advisors will naturally have providers they regularly work with so they won’t be considering every horse on the market. But at the same time advisors choose to work with fund providers / fund managers that they believe in i.e., they believe the fund management team/s are high performing and charging fairly for their expertise.
This initial setting up of investments, choosing an appropriate kiwisaver, creating a financial plan/strategy, setting out goals (short, medium & long term) can often be the most time-consuming part of the process but it will pay dividends (heh) in the future by providing a solid base to build from.
Getting you growing those investments
It’s usually not enough to just invest a lump sum and rely on the returns to grow the investment. It’s by adding to the investment regularly, alongside investment returns, that it will grow. You’ll find this is the basic premise behind kiwisaver. You start with very little and grow the sum over a long period of time by contributing a small amount (% of your income). This approach means your investment benefits from dollar cost averaging, and compounding returns and interest over a long time period
Keeping you in those investments when everything is doom and gloom
A financial advisor can keep you focused on your goals and the long-term. It’s easy to lose sight of perspective when markets are falling (as they often do), even more so when media is whipping things into a frenzy. And if it’s not the media then it’s some economist stumbling over themselves in their eagerness to tell you that it’s this year that the worlds capital markets fail and the world ends. This year. One of my favourite sayings is: economists have predicted 9 of the last 5 recessions. The takeaway from this? Doom and gloom sell but things carry on.
Sometimes you need someone outside your friends and family unit to tell you that everything is going to be okay, that the world isn’t ending and no you shouldn’t panic. Pull up any long-term graph of the S&P500 and you’ll see the huge dips when a recession hits. And you’ll also see the huge returns that follow after the dust has cleared, normally within 1-2 years. Do you really want to pull out at the bottom because of what the media or your weird neighbour said?
Helping you avoiding pitfalls along the way
Pitfalls in the financial world aren’t holes in the ground but rather: too good to be true investment opportunities (read: scams), emotionally charged decisions (pulling out of a down market before the upswing), spreading yourself too thin financially, losing sight of perspective & failing to keep to your goals. Often the greatest value a financial advisor can provide you over the long term is preventing you from making these and other miss-steps which can be devastating to your financial wealth journey. Across your lifetime there will be many opportunities that arise. Your neighbour may pull you aside and ask if you’d like to purchase their adjoining section privately, your taxi driver might tell you about a stock/fund/crypto currency etc. that no one but them knows is going to skyrocket soon, a shadowy figure in a trench coat might emerge from an alleyway and in a gravelly tone offer you an investment that will make 20% net p.a. guaranteed (No? Does this happen to just me?).
Okay so those scenarios may not be particularly likely to occur but the point being made is that a financial advisor over the long term can act as a soundboard for legitimate ideas you might have and a protection against unscrupulous rogues who would like nothing better than to scam you.
And then finally, pushing you to spend those investments in accordance with your goals.
After putting in the work saving and staying invested it’s time to actually use your investments/funds for your prescribed goals. For some this is easy. For some others being prudent becomes so much a way of life they forget that money is meant to be spent/enjoyed. The point I’m making is don’t become a millionaire who’d rather sleep in their car than pay $300 for a motel room for the night when something goes awry during your holiday.
As advisors we want to see our clients reach their goals. And reaching your goals means spending & enjoying the money you’ve worked hard to accumulate! Whether that’s taking a comfortable income in retirement, buying that car/caravan/etc. you’ve been working towards, going on the once in a lifetime adventures/holidays or whatever else it is you’ve planned for and worked towards.
Some additional light reading on how financial advisors can help you;
Financial Advice New Zealand research report
The below link is to the Financial Advice New Zealand research conducted in July 2020 “Trust in Advice” which you can download and read. This covers the positive impacts real New Zealanders see from obtaining financial advice (covers areas of mortgage, insurance, investment and financial planning).
The above blog was written by Reid Mckenzie a financial adviser working for Mckenzie Financial Planning (www.mckfp.co.nz).
The above information is general in nature as is not meant to constitute personalised financial advice. Reid recommends seeking personalised financial advice from a registered financial adviser before making financial decisions.