In a perfect world, we would all have a financial adviser who you could check in with regularly, including calling before making any investment decision or big purchase. But while nearly everyone benefits from working with a financial adviser, the cost often prevents it being worthwhile. Clearly, advisers must charge a certain amount to make a living (and don’t even get us started on the rising compliance costs for New Zealand financial advisory firms!) However, there comes a time when paying for financial advice becomes a solid investment in your future. But how do you know when you’ve reached this point and whether you really need a financial adviser?
Here are six things that may help you decide whether you really need a financial adviser, or whether to wait.
1. Changes in wealth
So, you finally got that promotion, or brand-new job and it came with a significant pay increase. Or, you inherit a windfall. What do you do next?
To avoid misallocating those extra funds, ensure you assign the new dollars a ‘job’. Every dollar should go to a bill, repay a debt, boost your emergency savings, or towards your investments. A financial adviser is able to help you do this, so you can take your finances to the next level.
But even if you don't have a ton of dough, hiring a financial adviser can make managing what you do have easier - and possibly increase your returns in accordance with the risk you’re willing to accept. Financial advisers can help you steer clear of not-so-savvy market behaviours and help you with asset allocation and reallocation. They can also save you time and stress, especially if your monetary road map just got more complicated with a pay rise, inheritance, or a new job. Major life changes such a career switch, retirement, or a new business venture can leave even a seasoned investor struggling with too many or too few options. Financial advisers know the ins, outs, and loopholes that can help you make the most of what you have and avoid the mistakes that are so easy to make during ‘transitional periods’ such as switching careers or retiring.
No matter how similar they may seem, no two financial situations are exactly alike. Even the most seemingly basic of situations can offer a wealth of financial planning opportunities for an investor. As the saying goes, "you don't know what you don't know", so you may have no idea what financial changes to consider now, and what preventative planning should be done today so you can live the life you want too tomorrow. The answers to simple questions such as “should I pay off the mortgage or invest elsewhere” can often receive a very different response depending on the most minor differences.
As well as those situations listed in the first section, life changes such as getting engaged, married or having a baby are all times when you might want to consult a financial adviser. The same can be said of anyone who has just repaid or is about to repay the mortgage on their own home. Even as those milestones start to appear on the horizon, it’s time to start having conversations about them now.
For many, a financial adviser may save them money over the short term. For instance, our advisers will often see people who have repaid the mortgage on their own home, and who have adult children who are no longer dependant on them, but who still pay hefty charges for life cover and other personal insurance policies that they don’t need. This is because as debts and dependants reduce through most people’s lives, and overall wealth increases, the need for many such personal insurance policies decreases significantly.
Financial advisers know the right people to talk to about all matters related to your financial life. This could be a lawyer to help with property or relationship matters, an accountant or tax specialist to work through matters such as direct investments in property or even overseas tax matters, and specialist organisations who deal with areas such as trusts and wills.
A financial adviser can help you get the correct estate planning documents in place, as well as work through things like if you can afford to have only one spouse working, what level of childcare you can afford, and how much you might be able to contribute to your children buying homes or becoming educated at university. A financial adviser can also identify and help raise matters for your consideration, such as whether complex financial and legal areas such as a prenuptial agreement may be worthwhile.
4. Emotional assistance
If you didn’t flinch during significant drops in value across nearly all investment assets in the 2008 financial crisis, or when the dot-com bubble burst, you might not need an adviser to give you objective advice and reminders. But many people receive great comfort from that source of calm. In fact, it can be argued that, how well you do over the course of your investing life is mostly dependent upon the two percent of the time when investment markets look like ‘the world is ending’. That’s when the value of having a calm, reasonable, and professional, very human financial adviser comes into play.
Further, an adviser can push you to be more honest about your finances and life in general. For example, many soon-to-be retirees’ overestimate simple matters such as; how long they will be able to remain in the workforce, how long they may stay in the family home before downsizing (most often retirees eventually begin to struggle with stairs and the maintenance of a large home and section), and even underestimate their own life expectancy given as people are now living much longer than they once did. Quite simply, many people don’t want to face-up to statistical information about their own situation and future.
5. The roadmap
Especially when we’re just starting out, there are so many goals competing for our limited financial resources. This could include; paying off your student loan, starting a retirement investment or KiwiSaver, saving an emergency fund, buying your first home, taking a holiday, getting married, and of course setting aside some funds to have fun with. It’s no wonder we come across so many financially overwhelmed people in their 20’s and 30’s. Financial advisers are trained to help people develop and prioritise their goals, and this is where a financial adviser who is removed from your personal situation can help you to focus on what’s most important to you at any given stage of your life. The financial adviser will then develop a roadmap for you to achieve your goals.
For those who are more mature, such as those thinking about retirement or about to retire, the goals are often simpler, and there may be fewer competing demands. However, retirement planning is when the roadmap to achieve your goals can be most important. Key questions many people who are approaching retirement ask include:
“How much income will I have in retirement?” and
“Will my funds last as long as I do?”
After first examining the detail of your situation, and understanding what you want to achieve, a financial adviser will be able to answer questions like these.
6. Financial planning can be for everyone
Think you can’t afford a financial adviser? You could be wrong. There is a common misconception that financial advisers are only for the wealthy. Many financial advisers, including Become Wealth, will work with individuals who do not yet have significant sums to invest. If you do end up engaging a paid service (as many come at no cost to you) Become Wealth transparently displays the cost of our services for all to see.
Obviously, if you’re strapped for cash you should probably pay off any credit card debt before you consider seeing a financial adviser, as this will help you to avoid paying high rates of interest. For everyone else, it’s probably a great idea to get in touch to arrange your no-cost and no-obligation initial consultation to see if you might benefit from the assistance a financial adviser can offer.
The bottom line
Let's recap the top six things to consider when evaluating whether you really need a financial adviser, they are: