Seeing the bigger picture
Financial advice can make all the difference when it comes to planning for a bountiful future.
Between 2009 and the end of 2013, the number of financial advisers in the UK fell by 15%, according to research from the Association of Professional Financial Advisers. That reduction reflects the drive to greater professionalism in the industry by regulators through the Retail Distribution Review, which introduced new rules on the training and competence of advisers, and the way they are paid by clients.
Yet the need for impartial, professional financial advice has never been greater. Mis-selling scandals, the increasing complexity of financial products and the growing imperative for us all to save more for our retirement means that even the most informed of investors will be in need of expert guidance. The government recognises this through initiatives such as the free pensions guidance to be offered through organisations including Citizens Advice and The Pensions Advisory Service. Guidance is a good start, but advice will be vital, and not just to ensure people make the right retirement decisions.
The regulatory changes have also spawned a wave of internet services, including fund supermarkets and companies claiming to be able to build investment portfolios based on little more than a lifestyle questionnaire. While these services, whether from the government or private companies, may be able to guide investors on the options available, they cannot, and do not claim to, offer tailored advice based on an individual’s circumstances, goals and financial position.
Adrian Batchelor, director of the Academy – the training college for St. James’s Place Partners – says:
‘The financial world is becoming ever more complex. We have specialists whose sole purpose is to pore over legislative changes, over every page of the Budget, to work out the implications for our clients and to keep our Partners up to date. I don’t know how people without access to that kind of information are meant to cope. It’s very difficult without that knowledge.’
Batchelor points out that in real life people rarely have just one financial need in isolation. ‘You might start by thinking you need to sort out your pension, but the ensuing conversation with your adviser could reveal that there are other gaps in your financial planning,’ he says.
Some financial decisions, such as opening bank accounts or sorting out home insurance, can easily be done independently. For the bigger issues, particularly those which require some forward planning, good financial advice is vital. Without advice, it can be hard to see the big picture: to appreciate how all the products and investments interact and combine; to assess where the gaps and imbalances are; and to define what needs to be done so you can achieve your goals.
There is growing evidence of the tangible benefits that professional advice can bring. Research conducted by insurance company Standard Life in 2014 shows how financial advice can fill in those gaps in an investor’s knowledge. The survey found that consumers who have taken pension advice during their working lives have a more realistic view of how much they need to save to produce sufficient retirement income. As a result, they end up with pension funds twice the size of those who did not seek advice, at an average of £74,554 compared to £37,277 for those going it alone.
There is a detailed process that a financial adviser goes through to ensure a client’s financial plan is correct for the client at the outset, backed by regular reviews to ensure that the plan remains appropriate and is on course to achieve the goals – something that DIY investors will often neglect.
“It is also easy to overlook the fact that attitudes towards risk change over time.”
One action that is easily overlooked by people doing their own financial planning is risk assessment. Investors should be familiar and comfortable with the concept of having their attitude to risk assessed as it should be one of the first activities undertaken with their financial adviser. It is, however, too easy to forget about risk after the initial assessment and to concentrate on performance instead. Indeed, assessing the risk and volatility of different investment vehicles is something that an ordinary investor would find very hard to do alone.
Also, investors should adjust their portfolios over time, for example, as they approach retirement or as circumstances change. Without an adviser, will the right choices be made?
A good financial adviser will want to review attitudes to risk at regular intervals to ensure that your financial plan and investment portfolio are still true reflections of your attitude and aspirations.
Even when you believe you have done everything you possibly could to anticipate changes in your own circumstances, the government may introduce legislation, change rules or develop new products that make a review of your finances essential.
There is evidence that the financial service industry is now adapting well to the rigours of the Retail Distribution Review, with the number of advisers now showing a slight increase and evidence of growing professionalism across the industry. That is welcome in an industry so vital for everyone’s financial future.