With no end in sight to the cost-of-living crisis, people are right to prioritise spending on necessities over luxuries. But in some cases the distinction between the two isn’t entirely obvious. Which category, for example, does financial advice fall into?

Financial journalist and author ROBIN POWELL explains why, in his view, it eventually becomes a necessity for everyone.

 

I have a friend called Eddie who likes to manage his family’s money. And “likes” is the right word for it. He’s naturally inquisitive and genuinely enjoys the intellectual challenge of working things out for himself.

From what he tells me he appears to have done a pretty good job. He has a globally diversified portfolio of low-cost index funds, split between equities and bonds, to reflect the level of risk he wants and needs to take. He’s also able to resist the temptation to chop and change, and has a healthy scepticism of the latest investment fads.

It sounds like just the sort of investment strategy, in fact, that a good adviser would recommend.

He also has the right temperament for do-it-yourself financial management. He’s always had a positive, glass-half-full approach to life, and tends not to worry about things that are out of his control. Now in their early 60s, he and his wife are on track for a comfortable retirement.

 

Not his normal self

But when I bumped into Eddie at a recent party, he didn’t seem his normal self. It soon became clear that he was anxious about the current economic downturn.

“I didn’t expect this,” he told me. “Just when I’m ready to put my feet up, the world’s in a mess. Soaring inflation, war in Ukraine, tensions with China, talk of a global recession, never-ending doom over climate change.. My portfolio’s already down 20%, and I’m sure there’s worse to come.”

For me, that conversation with Eddie reinforced a conclusion I’ve reached over the last couple of years about financial advice. And it’s this: professional advice is not a necessity for all of us, all of the time, but at some point in their lives, it becomes a necessity for everyone — even someone as smart and resourceful as Eddie.

I haven’t always believed that. I used to think there was a small minority of people who could be totally self-sufficient. What was it, then, that changed my mind? It was working on my new book, co-authored with Jonathan Hollow, called How to Fund the Life you Want.

When Jonathan and I embarked on this project two years ago, our aim was to produce a non-nonsense guide to investing and financial planning. We agreed to devote a whole chapter explaining the benefits of paying for advice, and another chapter to helping people find a suitable adviser. At that time, however, we fully expected that many of our readers would choose to manage without one.

What I discovered in the course of researching and writing the book was that this is a far bigger and more complex subject than either of us had fully appreciated. For example, although the principles of sound investing are very simple, applying those rules in practice can be anything but. The rules around pensions and ISAs, and particularly the tax implications, are actually pretty complicated, and, to make things harder still, they are also subject to constant change.

 

It’s not just about investing

Another point that writing the book emphasised for me is that investing is, in any case, a relatively small part of a much bigger picture. There’s a wide range of things that a good adviser can help you with, including taxes, estate planning, insurance, providing for long-term care and end-of-life planning.

But the most important, and in many ways, the most difficult, task of all is what I would call life planning. What are your values? What is really important to you? What do you want from life? How do you want to spend your time? Only when you’ve answered these questions can you work out how much money you’re going to need and then, through careful planning and cashflow modelling, ensure that you will always have enough, regardless of what life and the financial markets throw at you.

“Knowing what you want,” the FT columnist Janan Ganesh wrote recently, “is the most important life skill. It is worth more than either talent or hard work. It is almost worth as much as luck. Have it, and disappointment is still probable, but on your own terms. Lack it, and you will be done to and acted upon. You will be the creature of events.”

There are some fortunate people — Ganesh considers himself to be one of them — who naturally have a clear sense of direction. Most people don’t, and although it’s possible to work it out for yourself, it’s very much easier to do it with the help of a professional who’s trained to listen, to challenge you and to point out things you may have overlooked.

 

Three reasons to hire an adviser

The conclusion, then, that I have come to is essentially threefold.

First, depending on your circumstances, taking control of your finances without professional help can be hard work. It requires time, effort and self-discipline that you may or may not have.

Secondly, managing without an adviser is a risk. You may have a thorough understanding of investing, but still be making a costly mistake, whether it’s not taking advantage of a tax allowance or failing to spot fees and charges that you’re incurring and could be avoiding.

Thirdly, taking the DIY route means missing out on the single most important benefit an adviser provides, namely holistic financial planning. A financial plan and an ongoing planning process are particularly important as you approach and enter retirement.

 

What point are YOU at?

Eddie is absolutely right: 2022 has been an exceptionally tough year for investors. Falls in both equity and bond markets have taken their toll, and it’s only natural that people who were expecting to retire in the next two or three years are feeling concerned.

Financial advice certainly isn’t a luxury. If you’re making a radical change to your investment strategy, you should, without question, seek professional help. Younger people with relatively uncomplicated financial lives may not need to see an adviser every 12 months, but they would certainly benefit from doing so every few years.

There does, however, come a point in everyone’s life when seeing the bigger picture, and having a robust financial plan and someone you can trust to turn to when you need them, really is essential.

Eddie has finally reached that point. Have you reached it too?

 

PLEASE NOTE: The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This article is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.

 

CAN WE HELP?

If you’re looking for a financial planner, why not get in touch?

We’re based in Brighton and serve clients across the South-East of England. 

If we can’t help you, or feel you would be better speaking to someone else, we will be happy to point you in the right direction.

 

Picture: Ben White via Unsplash

 

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