There are some aspects of advice that you might think aren’t worth mentioning, because they’re so day-to-day. That doesn’t mean they’re not worth their weight in gold to a potential DIY investor, says Faith Liversedge.
Investing in the stock market has never been easier – with the click of a mouse a DIY investor can have a diversified portfolio set up in line with their risk profile in the time it takes to hang the washing out.
Fine, until volatile markets and challenging conditions come a calling. This is of course why people need a professional adviser.
I’m sure you’ve explained the value of your advice to people a hundred times, covering your experience, knowledge and expertise. The fact that you’re regulated, etc etc.
But there are often less glamorous parts of the job – things you do that you assume aren’t worth mentioning because they’re so day-to-day – that to a potential DIY investor, are worth their weight in gold. Especially when compared to the leg work, stress and toil they might go through alone.
Let’s look at a few of these:
People often don’t realise the extent of the administration involved in arranging and managing a pension. Chris Bow of Bow Financial Services recently spoke to a prospect who’d spent the first two years of her retirement trying to get access to her funds. She wasted countless hours on the phone being moved from pillar to post. She was sent forms to complete and filled them in incorrectly, which took more time.
An adviser wouldn’t let that happen. If it did get that far, they’d handle it on the client’s behalf, and be able to talk the provider’s language, therefore speeding up the process. The client would be none the wiser.
“We say to clients you probably have big dreams for your retirement. What you don’t want to be doing is managing endless paperwork and making dozens of phone calls to access your hard-earned money,” says Chris.
Another mistake this prospect made was not knowing how much income to take from her fund. This lady was already taking too much and would have run out by the time she got to 70.
Of course, an adviser would make sure that her income levels were more balanced and last longer, but is this something most DIY investors consider?
- The clarity
A large part of an adviser’s job is knowing all the options that exist, so they can find the best solutions for their clients. The client doesn’t need to know everything that the adviser knows about.
Likewise, they don’t need to read every web page that might come up in a DIY Google investigation. But they might end up doing this if left to their own devices, end up wasting hours of their time, and feel more confused as a result.
“I see life planning as a bit of a ‘hack’,” says Jon Elkins of Smarter Financial Planning.
“It’s like putting your phone on ‘do-not-disturb’ mode; we help people to focus on the important stuff and help them to make careful choices.”
An adviser can also create that all important context for a long-term investor. People need to know at the outset what to expect, and that investing isn’t always plain sailing. Otherwise, they’re more likely to lose faith and panic when their portfolio underperforms.
“I tell people at the outset that it’s likely that in year 1 and 4 I won’t be their favourite person at review, because it’s roughly that often their investments show a dip in value,” says Jon. “But that we’d be all friends the other three years because that’s when things usually correct themselves.”
- The counsel
A good adviser can protect DIY investors from making uninformed decisions based on their limited understanding of finance.
Take for example the recent Pension Bee controversy. The company has been criticised after emailing its customers telling them they could speed up the consolidation process thanks to the “option to waive checking for exit fees and valuable benefits”.
The letter continues: “With some providers, some older pensions may have exit fees or special benefits, such as guaranteed annuity rates and protected tax-free cash.”
The letter has been widely criticised by advisers for encouraging customers to make pension decisions that could cost them in the long run.
- The ongoing support
The Bank of England has warned that the UK economy may be heading towards a recession. At times like this, it’s an adviser’s job to discourage their clients from panicselling their stocks on a whim and hoarding it all in cash.
Daniel Midwinter of Midwinter Financial Planning uses two contrasting charts to show how bad a strategy that can be – one where the client holds tight and the other where they cash out, and materially damage the value of their portfolio. “I explain that it means ‘timing the market’, a near impossible task as you have to be right twice.
“I also mention that controlling your behaviour through all the market cycles – the good times and the bad times – is extremely difficult, particularly in the face of stock market falls like two years ago, or in the current market volatility, but it’s what will often make the difference between being a poor or a successful investor.”
About Faith Liversedge
Faith Liversedge is an experienced communicator with a wealth of knowledge and understanding of the adviser profession. She was Marketing Manager at Nucleus for 5 years, creating innovative and award-winning campaigns. Before that she worked for Standard Life, Prudential and Royal London. In 2017 she set up her own consultancy to help forward-thinking financial advisers and planners to become more profitable through websites, communications and other laser-focused marketing techniques