Sound advice worth paying for
A soundly-based adviser/client relationship offering real value will ultimately withstand clients’ disappointment with negative fluctuations on the share market, writes Rob Hope.
In times such as we have experienced in recent years and as the effects of the global financial crisis continue, the value of financial advice has often been questioned. The basis on which questions are raised is generally related to the reduction in the value of shares.
Criticisms have been made that by following a planner’s advice, clients have seen the value of their investments reduced.
In many cases this has led to a ‘flight to cash’ to avoid the possibility of further loss in value of their investments. Whilst this may meet a client’s short-term concerns, it is unlikely to meet their desired long-term needs.
Shares have always fluctuated in value according to market demand and they will continue to fluctuate in the future.
Investors accept fluctuations as a factor in share values but events such as the global financial crisis, which involve severe reductions in value, cause concerns not only for preservation of capital but ‘what am I getting for the fees I pay?’
When considering the current value of shares we need to look at how markets have moved in the years since 2000. The S&P/ASX Index (the ‘Index’) has moved from a low of 2673 in March 2003 to a peak of 6853 in November 2007.
The Index subsequently fell to 3111 in March 2009 following the onset of the Global Financial Crisis. Since 2009, the All Ordinaries Index has recently risen through the 5000 point barrier.
The degree in which investors investments are affected by this extreme market volatility is dependent on the individual investor’s time of entry into the market.
However, whenever this accrued the allocation of funds into shares would have been recommended to meet the clients’ long-term objective.
Market volatilities are events over which a planner has no control but by selecting an exposure to shares for a period which matches a client’s long-term financial goals, statistics have shown that long-term growth is best provided by investments in shares.
The role of strategically analysing a client’s financial goals and then summarising the recommendations in a simple to understand document is only a small part of what a good financial planner will offer.
Simply stated, the value of quality financial planning is in understanding a clients’ needs and setting and adhering to realistic strategies to achieve the desired outcome over short, medium and long-terms. Doing this with first rate client service and a strong projection of trust and professionalism are the keys to success.
Setting strategies requires knowledge and skill as well as a good understanding of financial markets. Apart from a formal review on an annual basis where specific goals, objectives and strategies are revisited and adjusted if required, it’s the additional services provided by good Financial Planners that quite often go unnoticed.
Some of these additional services include:
- Professional advice based on changes in personal circumstances and issues arising from changes in the legal and economic environment;
- Proactive engagement on legislative and economic changes that may impact on existing strategies;
- Monthly market reports, client briefings and economic updates;
- The opportunity to access service personnel during business hours to answer general questions and provide up-to-date account balances;
- Additional appointments at no extra cost;
- Being available after hours for urgent enquiries at no extra cost;
- Annual, half yearly and/or quarterly portfolio updates;
- Invitations to free seminars appropriate to one’s needs;
- Maximising Centrelink entitlements;
- Minimising aged care costs; and
- Estate planning considerations.
This knowledge and ongoing support is most certainly worth paying for by clients – and if a planner can tick off all of these boxes then a long loyal relationship can be achieved.
It is important for planners to understand the importance of relationships, especially when market volatility impacts returns from time to time.
Where the fee between a planner and client is fair and the client clearly recognises where the value lies in strategic advice, there is unlikely to be criticism of fees during periods of poor returns.
Sound advice is about setting down agreed actions, utilising investment diversification and avoiding the “next hottest thing works”.
It is not the financial planner’s role to try to tip markets and continually move investments from one sector to another, but rather it’s about identifying appropriate strategies and structuring assets into categories that will do the job over the short, medium and longer term.
This is not a “one-off event” but rather a rolling process that takes into account clients’ changing circumstances along with the changing circumstances within economies and investment markets.
The financial planning industry must continue to advance into a mature profession that the public understands and values and we can look forward to such changes with enthusiasm.
Good financial planning is an extremely valuable service and it will become increasingly more essential as the population continues to age and the compulsory superannuation system works its way through a full generation of employees.
Rob Hope is a financial planner at Fiducian Financial Services.
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