This is a question I am often asked by people, and my answer is usually not what you would expect from someone who makes his living by giving financial advice. I often say that I am only in business because people are too scared to make decision themselves. The truth is that for most people, if they have a little bit of time to educate themselves, a financial advisor is not required except when you need access to products where an intermediary is required.
Most people have various reasons for using a financial advisor, but it usually boils down to them being overwhelmed by the large variety of ways to invest, information and misinformation about the subject, and the idea that a professional advisor can help them steer their way through it all without making any horrible mistakes. The sad truth is that even professionals often find themselves falling into the same traps as retail investors, although few in the industry like to admit this.
If you are not likely to make your way through a world of decision making under conditions of imperfect information – that’s a technical way to say all investing has real risks of losing money involved – without an improved probability of finding superior investments, why not take responsibility for those decisions yourself? I know that when I mess something up myself I handle it a lot better than when someone else’s mistake costs me time or money. If everyone thought this way, I would probably be out of business, but I think everyone should.
The people that I believe do need a financial advisor are those who simply are so busy at work, as is happening more and more often in the modern age, that they don’t have time to craft a plan and execute it. While there are plenty of people in this camp, I think most people fall into the camp of being afraid to take responsibility themselves.
A basic financial plan should include an emergency cash reserve, insurance against illness and death or disability, and a monthly savings amount towards future goals such as retirement or kids schooling fees. Investments themselves do not need to be complicated, and in fact keeping it simple is most likely to lead to better performance as well as your ability to follow the strategy with discipline in difficult periods. Many people avoid financial investments altogether and spend their lives building up a portfolio of rental properties. While I believe diversification is better, I have met many very successful investors over the years who have managed their own affairs in this manner and been very successful at it.
Regardless if you chose to do things on your own or use a financial advisor, always remember that a certain element of every advisor’s business is sales. If you need an insurance policy or a savings plan, do your own research on the recommendation of the advisor and see if there are other users of the plan who have given positive or negative testimonials. Today it is easy with the internet to research just about anything. Take the time to make a little extra effort in what is one of the most important areas of your life, it could make a huge difference in your standard of living when it comes to retirement time.
David Mayes MBA lives in Phuket and provides wealth management services to expatriates throughout Southeast Asia, focusing on UK pension transfers. He can be reached at 085-335-8573 or david.m@faramond.com. Faramond UK is regulated by the FCA and provides advice on taxation and pensions.
