Assessing your Need for, and the Value of Financial Advice

Alicia and I recently attended our Australian Financial Service’s Licensee conference in Adelaide at which we were privileged to be exposed to some of Australia and the United States’ thought leaders in business strategy, investment management, psychology and organisational development.

During the conference, we participated in a number of lectures, presentations and workshops on technical matters aimed at enhancing our capabilities in the provision of Financial Advice that is relevant, effective and valuable to our clients.

Buxton Private Wealth was also recognised with an award for Excellence in Compliance and Best Practices.

This led us to thinking about what value this might mean to our clients – if anything! For us it was very nice recognition of how we run our business from a compliance and operational perspective – but….what or where is the client value in this?

Why do people seek the services of a financial advice firm, and how is value measured?

There appear to be three primary needs / motivations for people when engaging an adviser:‍

• Specific financial needs - A need for particular financial issues to be addressed like retirement planning, handling new wealth, or tax planning.
• Discomfort handling financial issues - A lack of confidence in the skills needed to achieve financial goals, or a lack of knowledge regarding financial/investment matters.
• Education and ongoing support - A need for help in ensuring informed decisions consistent with the achievement of financial objectives - including developing and executing a financial plan, reviewing and assessing progress, motivation to stick to the plan, or providing guidance on what (not) to do in certain financial situations. For example - protecting portfolios from excessive emotional reactions (during periods of irrational exuberance / uncertainty or panic).

One of the greatest challenges we face in our discussions with prospective clients is the fact that while the cost of advice is determinable upfront, often – value is only revealed over time. In addition – value is both quantitative as well as qualitative.

Quantitative elements include:

• Tax aware strategies – superannuation, investment, estate planning and use of legal entities
• Supporting investment behaviour consistent with objectives – not emotions
• Increased savings, reduced withdrawals
• Avoiding excess cash
• Asset allocation / investment product choice
• Reduced product costs
• Debt management
• Balanced cost / risk trade-offs with life insurances

Qualitative elements include:

• Education and support, ensuring informed decision making
• Regular assessment of progress, and timeous course correction
• Bandwidth to focus on important life matters – business, career, family etc
• Peace of mind

Consider the most begrudging of final decisions – Life insurance.

Life risk insurance is on the balance of probabilities the worst financial investment one can make. The expected returns are by definition negative!

Statistically - the average healthy Australian female aged 40 has the following life risk probabilities* in the 25 years between 40 and age 65:

• Death claim 1.2%
• Critical Illness / Accident / TPD claim 19.3%
• No claim 79.5%
• If disabled, the disability lasts more than 3 months 40%

*Source – Iress Risk Researcher

Given these probabilities, why recommend death cover with ongoing premium costs and a 98.8% chance of never receiving a return on the investment?

The value lies in establishing an appropriate and informed cost/benefit trade-off between the cost of premiums and the financial impact of the occurrence of an insured event. Whilst low probability; lost income and unrecovered medical and rehabilitation costs can be catastrophic.

In simpler terms, the real value lies in the peace of mind you get from being on track to achieve your financial goals whilst consciously avoiding disaster. On track - means regular review - so you are not over or underinsured.

However - unfortunately, financial advice in Australia has a chequered history!

The unfettered pursuit of profit, the lack of skill, the conflicts of interest, the fraudsters and the charlatans - have all too often caused devastating financial loss and emotional pain.

So back to the award – Excellence in Compliance and Best Practices.

We are pleased to have been recognised – and highlight the real value to you - in your dealings with a professional firm that acts in a manner which demonstrates, realises and promotes the following values* – while providing advice which is appropriate and in your best interests:

• Trustworthiness
• Competence
• Honesty
• Fairness
• Diligence

The combination of the professional adviser’s intimate understanding of a client / family group and their motivations, fears and objectives; psychology, relevant law and tax; markets, economics and financial products; and politics and history - have been shown to add up to 4%** in additional return per annum to a client’s financial position – relative to the unadvised client.

We are delighted to be your partner in your journey to wealth.  

*ASIC Financial Advisers Code of Ethics 2019 – Section 921E of the Corporations Act.

**Merrill Lynch- Vanguard / Morningstar / Russell Investments – et al.

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