02 Feb 2021
Scott Moore, a Financial Planner, based in 1825’s Glasgow office speaks about the value of financial planning advice.
Red Adair, the famous American oil well firefighter, is believed to have coined the phrase “If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur”. A very apt quote considering that oil well fires are normally put out using controlled explosions, rather than just dousing them in water.
According to the Chartered Institute for Securities and Investment (source below), financial planning is “a professional service for individuals, their families, and businesses, who need objective assistance in organising their financial affairs to achieve their financial and lifestyle objectives more readily.” Financial planners do this by helping their clients identify goals and objectives, working with them to create a plan (that will generally require on a range of insurance contracts and/or investment policies) and then guiding them in following this plan over the years, adapting and evolving where necessary. Although the description sounds simple, it is rarely so.
Financial planners can add value in many areas, and although in some areas it is less tangible, it is no less important. Some of the key areas are as follows:
Goal setting
Thanks to their experience and technical knowledge, financial planners are experts in uncovering and identifying financial goals and objectives. When pressed, most people can paint a broad picture of their ambitions and aspirations, and they instinctively know what concerns them and what they fear, but very few people are able to concisely articulate this and create a clear plan for how they could protect and might be able to grow their wealth. Without a destination to aim for it is very difficult to know how to start a journey, and so this is an invaluable skill.
Investment advice
Most financial plans created will need investment policies. Whether these are pension plans or Individual Savings Accounts (ISA’s), general investment accounts or investment bonds, all policies require an investment strategy that is good value, reflects the appropriate risk profile, and is designed in such a way as to offer the maximum potential return for the risk level taken. This requires both an astute understanding of the marketplace, and also technical knowledge and practical application of skills. Without an appropriate investment strategy, even the best laid plans are likely to go astray. Please remember that the value of investments can go down as well as up, and could be worth less than what was paid in.
Tax planning
For most individuals, investment strategy will centre around mainstream investment products like those listed above. However, the correct use of these different tax wrappers requires a detailed understanding of the legislation that governs them, and the tax landscape. Some policies, like pensions, offer upfront tax advantages in exchange for potential tax bills later on, whilst general investment accounts offer no upfront tax relief but gains can be set off against annual tax allowances. Using these alternative options appropriately can help to maximise returns in the long term. It’s worth a reminder that laws and tax rules may change in the future and the information here is based on our understanding in January 2021.
Behavioural guidance
No matter how good a plan, there will always be events that occur along the way that threaten to derail it. Whether these are financial crises, or perhaps even periods of irrational exuberance in the markets, investors’ confidence in the plan will be challenged and there will be times where doubt weighs heavily on their minds. In these times they will be tempted to make decisions that make sense in the short term, such as selling investments when the market is falling, but that will have a detrimental impact on their position in the long term. Guidance and advice during this time is an essential part of the financial planning relationship.
Withdrawal strategy
Most people will have a number of different policies and pensions when they reach retirement, the point at which their income stops and they start to draw on their funds. The tax system is complicated, as are the rules that govern the different policies they are likely to own, and there are likely to be great differences in outcome depending on how funds are drawn down e.g., unnecessary taxes may be paid if large sums are taken from pensions. A financial planner can use financial tools like cashflow modelling software to model different scenarios and alternative courses of action, and give advice on the best way to fund a desired lifestyle whilst also preserving wealth as much as possible. This can make a great difference over the average retirement, which can be 30+ years.
When looked at through this lens, it is clear the great value financial planning advice can have. Not only do expert financial planners offer great technical knowledge, but also practical and pragmatic real-world experience. By standing alongside their clients through good times and bad they could be the difference between them achieving their ambitions or not. Financial planning advice can look expensive in pounds and pence terms, but financial planners could prove their value many times over.
If you want to find out more about anything covered in this blog or have any questions, you can get in touch with Scott at scott.moore@1825.com or visit www.1825.com
