What is the real value of financial advice? When most people consider a financial advisor, they think of someone who selects the best investments. By investing in to the ABC fund, you will get a better return on your investment than by investing in to the XYZ fund.
Whilst there is some element of truth to this, it is only a small piece of the puzzle. Of course, with time and effort, there is no reason you couldn’tchoose your own investments.
Quantifying the value of financial advice
The true value of working with a financial advisor is avoidance of expensive mistakes. It is less about picking the best investment and more towards making smart decisions with all aspects of your cash.
The 7 key benefits of working with a financial advisor
1. Portfolio Rebalancing
To maintain the best mix of investments, you should rebalance your portfolio every now and then. This involves selling some investments and using the cash to top up the others. This can be emotionally difficult to do, as we may have become attached to specific investments.
A financial advisor will review the portfolio impartially and rebalance as necessary. This will make sure that you continue with the right mix of investments and don’t take more risk than you are prepared to.
2. Asset Allocation
Getting that right ‘mix’ of investments is the most critical investment decision. How much should you actually invest in bonds, equities, cash and the like? Invest too carefully and you are unlikely to get the returns you need. Invest too aggressively and you will lose sleep.
A financial advisor will assist you in defining your goals for the investment. They will design a well thought out investment policy, choosing the right mix of investments for you. This makes sure that you take the right level of risk for you and are best placed to reach the returns you need.
3. Investor Coaching
Investing can provoke really strong emotions. When our investments drop by 20%, we can’t stop ourselves from panicing. When our investments jump by 20%, we go a little crazy and celebrate.
The issue is, we are only human. We are hard-wired to swerve pain and seek out pleasure. Therefore, we sell our investments when they drop, and we buy when they rise.
A good financial advisor will be the voice of reason between you and a costly mistake. They will deliver sound, impartial advice, helping you to keep to the plan and stay invested.
4. Cost Management
In many areas of life, it is true that you get what you pay for. Should you pay more, you tend to get more. But in the wonderful world of investing, you actually get what you don’t pay for. Think about it, it does makes sense. Cost matters, because every single pound you pay in costs goes on to eat into your future returns.
A financial advisor will reduce your fees by giving you access to institutional investments which have lower costs. This ensures you get to keep more of any investment return.
5. Withdrawal Strategy
How you withdraw your money from investments can have a significant impact on your overall return. Which account is the right oneto withdraw from? Which exact investments should you sell?
A financial advisor will design a withdrawal strategy for all your investments. This maintains that withdrawals are as tax-efficient as they possibly can be and that you keep the right mix of investments.
6. Tax Management
Taxes can be a major weightto your investment returns. Selecting the best ‘tax wrapper’ is just as important as selecting the best investment strategy.
A financial advisor will assist you in working out which accounts are the right ones for you based on your tax position. They will take into consideration the tax rate you pay now and consider future tax implications when you finally come to withdraw the money.
7. Income Management
Your investments should produce income, such as dividends. Unless you reinvest these, the money will sit doing nothing, providing no return. You may well also need to withdraw some of your income from the portfolio.
A financial advisor will continually reinvest any income the portfolio generates. They will also choose which investments are sold, should you need to withdraw money.