The last post was all about whether or not financial advisers were able to help improve the performance of your investment portfolio.
But a good adviser can do much more than simply manage your portfolio. All advisers worth their salt offer a variety of non-investing services, aimed at improving your wider financial life beyond your portfolio.
So when should you bother hiring a financial adviser?
1) You’re thinking about retiring. Moving from an accumulator to a decumulator is a massive jump both financially and mentally. The safety net of being able to make additional contributions to your portfolio vanishes the moment you retire, and your retirement pot now becomes your sole source of income.
Mentally, you move from an abundance mindset of always having the option to work a bit more to add to your retirement pot, to a scarcity mindset as your finite pot becomes the thing on which you depend on survive. This is understandably a nerve-wracking time for most people.
A financial adviser can help you answer the number one question you’ll have as you think about making the transition to retirement: “Do I have enough?”.
This is a surprisingly difficult question to answer, even for the professionals. But an adviser can help analyse your income, spending, and portfolio to help you decide when to pull the trigger on retiring. Using cashflow modelling tools, they can help design, implement, and maintain an asset allocation and spending strategy to meet your needs in retirement.
They’re also able to help answer questions around things like state pension eligibility, pension drawdown options, tax-free lump-sums, and the different ways you can withdraw cash from your portfolio.
2) You’re already in retirement. If you’ve already retired, then you’ve more than likely already received financial advice. But it’s never a bad idea to seek out a second opinion, and visiting a financial adviser to double-check your portfolio and withdrawal strategy can provide additional comfort that you won’t be running out of money any time soon.
3) You have a life event. Big life events mean big changes to your financial situation. It’s worth considering seeking financial advice if you find yourself in one of these scenarios:
- You’re getting married, and looking for advice on how to combine finances and manage them as a couple going forwards,
- You’re getting divorced, and looking for advice on how to manage your finances as a single person again (this is particularly relevant if you’re not the one in the relationship who did the “money stuff”),
- You’re inheriting money, and looking for advice on what to do with it,
- You’re changing job or employment type (i.e. employed to self-employed or vice-versa), and are looking for advice on how this will affect your finances,
- You’re moving country, and looking for advice on how this impacts your tax, employer pension, and state pension situations,
- You’re making decisions around your pension (e.g. moving from a defined benefit scheme to a defined contribution scheme, or thinking about taking a lump-sum), and are looking for advice on the best course of action.
In each of these situations, the life event can alter your progress towards whatever you’ve been saving for, and a financial adviser can help ensure you stay on track.
4) You’re planning your estate. A financial adviser can help you setting up a will, power of attorney, trusts, and inheritance tax planning to ensure your assets are distributed in accordance with your wishes, and in the most tax-efficient manner.
5) You don’t have the time or interest to learn about investing/financial planning. Let’s be honest, most people find this stuff boring. We’ve all only got 24 hours in a day, and very few of us want to spend it researching which funds to buy, navigating tax rules, or getting our heads round sustainable withdrawal rates. To make matters worse, it can be difficult to even know where to start when you’re learning about investing and financial planning. There’s a seemingly infinite amount of information on the internet about this stuff, and much of it is contradictory – especially when it comes to investing. Finding a trusted source of information is a research project in itself, before you even make any headway with learning about finance.
Employing a financial adviser means you don’t have to spend your time learning about any of this stuff – they’ve already got all the qualifications and experience necessary, and can explain it all for you (if you want). Or you can just leave them to get on with it.
As another time saver, almost every part of your financial life comes replete with mountains of administration. Paying someone else to do all the paperwork for you is always going to be an attractive proposition.
I also wrote in the last post about how plenty of DIY investors have poorly constructed portfolios. They’re more likely to have portfolios which don’t match their risk profile, hold too much in cash, hold too much in home country equity exposure, hold too much in active funds or single stocks, not be tax optimised, or not have a sensible drawdown strategy. By delegating to an adviser, they’re able to ensure your portfolio is appropriate and well-constructed, so maximising the value of your investments over time.
By hiring an adviser, you’re not only buying your time back by not having to learn about all this stuff, you’re more likely to improve your portfolio, and so improve your investment outcomes.
6) You need to sort out accumulated financial products. Because of the unending paperwork which inevitably accompanies things like pension transfers, many people end up with an impressive collection of assorted financial products. Old pensions, ISAs, insurance policies, and the like can easily end up forgotten about, or put on the “deal with later” pile which somehow never seems to shrink.
Again, a financial adviser can help. They’ll do all the trawling through your financial products, decide how best to consolidate them, and organise them into a cohesive and manageable system.
7) You want a second opinion. Sometimes it’s reassuring to have a sense-check. Many of the scenarios in this list are big decisions you don’t want to get wrong.
If you’ve been doing your own research, there’s no harm in double-checking your thinking is correct, and if you’ve already employed an adviser, there’s no harm in checking the advice you’ve been given is sensible.
Even if you’re not contemplating a big decision, many investors also value having a brief sense check to make sure they’re on track. Whether that’s making sure their portfolio is appropriate (in terms of risk profile, diversification, tax efficiency, etc), or making sure their retirement spending isn’t going to cause them to go bankrupt in 5 years’ time, having an independent set of eyes on your financial plan can be hugely reassuring.
Speaking of which, an adviser can be particularly valuable if…
8) You’re worrying about money. They say that your investments should be optimised for sleeping well, not eating well. And really that should apply to your whole financial life.
An adviser can help with that sleep-at-night factor. As mentioned, they can give peace of mind by providing a second opinion and reassuring you that you’re on the right track.
But for those investors who don’t want to manage their own portfolio, an adviser can also provide peace of mind when acting as a portfolio manager. It can be reassuring to know there’s a trusted fiduciary keeping a close eye on your portfolio, whose job it is to ensure your portfolio always remains appropriate for your circumstances.
One of the Vanguard studies in the previous post showed that of the clients who used a human financial adviser (as opposed to robo-advice), only 24% would have peace of mind if they were managing their investments on their own. But a whopping 80% reported having peace of mind with the help of their advisers:
And for those approaching retirement, having someone to help answer the big questions of: “Am I going to be OK?” and “Do I have enough?” can reduce a lot of the worry and uncertainty that goes into retirement decisions.
So advisers can provide peace of mind as second-opinion providers, portfolio managers, and big-decision helpers.
It’s a far fluffier, more intangible benefit than something like estate planning or pension consolidation, but providing peace of mind is nonetheless a hugely valuable service provided by advisers. If it helps you sleep at night, then it’s got to be worth paying for.
Should you hire a financial adviser?
Let me be clear up front: I don’t use a financial adviser.
I’m (relatively) young and have a very simple financial life. I’m an experienced and confident DIY investor, have minimal admin to deal with, am not going to be retiring any time soon, and sleep perfectly well at night. At this point in my life, there’s really no need for me to be employing an adviser.
But I’m not a normal investor. Most people a) don’t work in the investment industry, and b) don’t spend their weekends trawling through investing papers, forums, and books to write about on their investing blog. So although I don’t use a financial adviser, I wouldn’t use me as a role model unless you’re as equally obsessive about investment and finance as I am.
For most people, and in the right circumstances, financial advisers can be hugely valuable.
They can help with life’s big money questions: “Am I going to be OK?”, “Do I have enough?”, “When can I retire?”
But they can also zoom in from the big-picture stuff, and help with the day-to-day administration of your financial life. By delegating some or all of your financial affairs to an adviser, you can choose how much of your life is spent on form-filling, phone calls to customer service helplines, and other nauseating administrative tasks. This is especially valuable to those whose financial life is a tangled web of old DB pensions, offshore trusts, or insurance policies.
By taking on the burden of administration, an adviser not only saves you a headache, they buy you more time. Time you can spend on more meaningful things.
As well as their help on the big questions, the quotidian admin, and the time savings, advisers also provide peace of mind. It’s why measuring the value of an adviser can never be properly encapsulated in a pounds-and-pence figure. Despite not being quantifiable, from the advisers I’ve spoken to, it’s this “peace of mind” factor which their clients tend to value more than any other.
So if you find yourself in one of the 8 situations above, then hiring a financial adviser could be a very sensible idea. And although I don’t use one now, I’ll almost certainly be using one later in life.
But all this assumes, of course, that you’re hiring a competent financial adviser who’s acting in your best interests. Trying to figure out whether an adviser is a) trustworthy, and b) competent is not an easy task for anyone, but especially for those who might not be financially literate.
This is a particularly pernicious problem in the finance industry, as those people looking for a financial adviser are often those least likely to be financially savvy, and so are most likely to be taken advantage of, or be unaware they’re being provided with poor financial advice.
Which is why next week’s post will be all about how to choose a financial adviser.