In an age of DIY- everything, it is easy to be convinced you can go-it-alone when it comes to financial planning. With all the information ever known to mankind just a Google search away, it goes without saying that everything you need to know about financial planning is there for the taking. Being time-poor and information overloaded are just a few reasons why you should consider engaging the services of a professional adviser.
Saving you time
Financial services is one of the most heavily regulated industries in South Africa, and rightly so. With literally thousands of unit trusts, retirement funds and insurance companies to choose from, stringent regulation is essential to ensure investors are protected from criminals. Tight regulation also means that the industry is administratively intensive to the point of being laborious. Financial planning is expansive in that it covers a myriad of areas including risk protection, tax advice, local and offshore investing, estate structuring, retirement funding, financial management, medical aid and more. Although it is possible to research, construct and implement your own financial plan, the exercise will undoubtedly be an all-consuming one. On the other hand, an independent advisor will be able to more succinctly identify your needs, narrow down the available options and sift through the noise. If she is truly independent, she will be in a position to recommend a range of solutions that meet your requirements and price point.
Saving you money
As the financial planning industry has matured, a number of highly professional fee-based practices have emerged. Rather than charging large upfront commissions, fee-based practices charge a professional fee in return for independent financial advice. There are a number of professional fee structures available, so it is important to fully understand how your advisor charges to ensure you are getting a good deal. Many professional practices charge an upfront planning fee which covers the development costs of your plan, together with a fee charged as a percentage of assets under advice. Many firms have negotiated favourable investment fees through multi-managers and asset managers, meaning you are able to invest more cost-effectively through the planning practice. In addition to benefiting from more favourable fees, employing the services of an advisor can help you avoid making expensive financial planning mistakes such as not making use of available tax breaks, not using continuation options or investing too conservatively for your needs.
Holding you to account
Like your annual visit to the dentist, committing to meet (at least) annually with your financial adviser can be a big ask. Any adviser worth their weight will insist on reviewing your financial plan every twelve months, and more regularly if circumstances dictate. Major life events such as marriage, a property purchase, change in employment, the birth of a child, divorce or retrenchment may necessitate more frequent meetings with your adviser in order to recalibrate your plan and re-set the course. Your planner should prompt and encourage you to engage with him on a regular basis. If you are paying your adviser an ongoing professional fee, there should be no additional charges as and when you need to engage his services.
Controlling your emotions
The old Wall Street saying that ‘financial markets are driven by two powerful emotions – greed and fear’ remains true today. Add to this an element of confusion and it is easy to see how investors can make irrational decisions in times of market volatility. Simply put, in times of crisis, it is human instinct to take remedial action. While we are programmed to identify problems and find solutions, investing calls on us to respond somewhat differently. Although it is only natural for investors, in times of political and economic uncertainty, to panic – the correct course of action is most likely to do nothing at all. A good financial adviser will actively engage with you through times of market uncertainty, remind you of your long-term goals, educate you on the reasons for short-term volatility and encourage you to remain focused on your objectives.
Making informed decisions
In an era of fake news, it can be difficult for even the most discerning individual to uncover the facts of a situation – with cryptocurrencies being a case in point. Amidst the Bitcoin hype, it remained almost impossible to substantiate facts, verify information or find a reliable explanation of how cryptocurrencies worked. As a result, many investors bought cryptocurrencies with little or no information as to what they were buying into. Making uninformed decisions can cost you dearly and unnecessarily derail your financial plan. With scams and corruption at an unprecedented high, a financial adviser plays an important role in helping you to research, assess and make informed decisions about how and where to invest.
Understanding legal intricacies
The broad scope of financial planning means that it covers a range of legislation, including tax, marriage and divorce, contract, insurance, property, deceased estates, succession, retirement and more. Each area of financial planning has its own set of legal intricacies and complexities which are best navigated together with a qualified adviser. Not fully understanding, for instance, the legal implications of setting up a trust, gifting assets to a child or withdrawing from a pension fund can have far-reaching, and often irreversible, financial consequences. A qualified financial adviser that holds a CFP® designation should have a solid understanding of these areas of legislation as they pertain to financial planning.
Reducing your tax burden
A key role of any financial adviser is to help you structure your financial portfolio in the most tax-efficient manner. By understanding income tax, donations tax, CGT, transfer duty and estate duty in the context of your financial plan, your adviser will help you structure your estate optimally for your benefit and for the benefit of your heirs.
Making it personal
Personal financial management is the cornerstone of financial planning and is something a good financial adviser will be able to assist you with. Most financial advisers are able to provide clients with advanced budgeting, money management and debt reduction tools, together with advice on how to allocate expenses, cut costs and budget for medium- and long-term goals. Through regular interactions with your adviser, budgeting and money management should become habitual. Find an adviser who is happy to take the time to work through your budget and help you achieve your goals.
Having a trusted guide
One of the greatest benefits of partnering with a financial adviser is teamwork. Having a trusted and well-informed partner to help you navigate the legal, financial and administrative complexities of the industry is comforting. As a guide and mentor, an adviser can prevent you from second-guessing your decisions and deviating from your path. As an independent and educated gauge, your adviser fulfils the important, and often indispensable, role of financial touchstone.
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