We’ve been told we need one, but we’re still unsure exactly what financial advisers do. So, we asked Ben Nash (a very busy financial adviser who does many, many things) to give us the low down.
As a financial adviser I must have been asked hundreds of time exactly what financial advisers do and how financial advice works. So I started writing it down, and the words just kept a comin’! Turns out, I’ve got a lot to say about what it is we do. This is actually pretty wordy, but I think understanding what advice is, when it can help, and how it all works is a big step towards putting your money to work for you.
The problem with money
I have some really interesting conversations with people when we are first introduced or they first contact me through Pivot Wealth. Most of them start with the person saying “I’m not sure if I need a financial adviser, but there are these things I’ve been thinking about…”.
People often want to get more out of their money, but don’t know where to start or what sort of help is out there. Every person’s situation is unique, of course, but I’ve found that people face some common money challenges:
- They’re overwhelmed with options and suffering information paralysis
- They don’t have a good system to make smart money decisions
- They can’t see a clear path from where they are now to the money and lifestyle outcomes they want for the future
When you’re not sure what to do, how to do it, or how to get started, you fall into the inertia trap. You just keep doing what you’ve been doing, ultimately missing a bunch of opportunities. Opportunities to save more, invest more, and move closer to the lifestyle you want. The cost of this inertia over time is huge, and should be avoided at all costs!
It doesn’t have to be so hard
People want more. We want to both spend more and save more. We want to take steps that will set up the lifestyle we want for the future. Whether it’s travelling more, building a second source of income, or growing assets that will provide for our family or loved ones, we want results.
But it’s often hard to know what to do, what resources are available, or who can help.
Many try to figure this out themselves, struggle through, become frustrated, suffering slow (or no) progress, and make mistakes and setbacks.
I’ve asked a number of the people I’ve worked with what stopped them from seeking out help sooner. The common response is that they didn’t know what sort of help was available. Or who might be right to help them.
And it’s no surprise why.
What financial advice used to be
Before we get stuck into exactly what it is financial advisers do, let’s address the elephant in the room. Financial advice grew up around product sales. Back in the day, financial advisers were the only ones who had access to financial products like investment funds, superannuation, and life insurance. If you wanted to get one of those products, you needed to speak to a financial adviser and have them help you set up the product.
If you saw an adviser and didn’t take out one of these products, the adviser didn’t get paid. Sometimes this would mean your adviser would say they couldn’t help you. The most common response I’ve heard is being told to “come back when you’ve got $100k to invest”. In bad cases, the adviser would convince you that you needed a product that you didn’t really want or need.
Now both are bad outcomes and really grind my gears, both for different reasons. In the second instance, you ended up with some crappy product that isn’t right for you, but the first was even more costly.
Saving $100k is no easy feat, and if you’re told to go off and save this by yourself it can mean years of slow progress. We’ve already seen the cost of delayed action above.
Thankfully these days advisers realise they can provide a lot of help to people just getting started. In my opinion this is a great shift, because it forces financial advisers to add real value. They need to help people figure out the strategy that sits in front of any product, and how to use the tools available to get results.
In current times, people looking for help with their money want, deserve, and demand more than product advice. This is a beautiful thing to watch.
What financial advisers do now
So with all of this in mind, the way I see it, financial advice has one goal: To help you build a clear and easy path from where you are now to the money and lifestyle outcomes you want.
The result is financial planning, but this typically involves more lifestyle planning than financial planning. This is because the right financial decisions are driven by the lifestyle outcomes you want.
These days we’re a little spoilt. We want it all. The lifestyle, the freedom, the flexibility. We don’t want to compromise.
The good news is we don’t have to. Money won’t ‘fix’ anything but it does give you options. I see money as a tool you can use to set up the life you want to live.
So to choose the financial direction you want to take you need to consider the lifestyle you want to live. This is the only way to end up with a strategy that excites you and gives you confidence that you will get to where you want to be.
That’s exactly what financial advisers do
A good financial adviser can help you understand where you’re at now, your key opportunities, your options and their impact, and how to choose the right combination of strategies to give you the outcomes you want from a money and lifestyle perspective.
Unlike other professionals such as mortgage brokers, stockbrokers, or accountants, a financial adviser sees all of your situation. They have a complete picture of what’s important to you now, how your situation may change into the future, and what you need to do to get there.
Because a financial adviser sits in the centre of your financial world, they can see how the different elements of your strategy work together. They can help you work with professionals in other areas to support your broader strategy. An adviser will also help you ‘project manage’ the support you get from your other professionals, so you get the best outcomes from your strategy.
Big picture thinking
I’ve seen many situations where other types of financial professionals provide ‘good’ strategies or advice, but that still doesn’t mean it’s the best advice. I was recently working with a client who was self employed and looking to buy property. His accountant had been telling him to structure his income in a certain way. While the accountant’s advice did give my client the ‘best’ tax outcome, the scope of this advice was too narrow.
You see, because my client was about to buy property and go into a bunch of debt, he wanted to keep extra cash savings aside to fund his deposit and reduce his debt levels. He was prepared to pay a little more tax in the short term to save him interest costs and have better cashflow after his property purchase. This accountant had given my client the best tax advice, but it wasn’t the best financial advice when looking at the bigger picture.
Types of financial advice
There are two types of financial advice:
- Specific advice
- Comprehensive advice
Sometimes you might need to get advice for a specific financial area. Other times you might be looking for overall advice to get the most out of your entire situation. It’s critical to understand the difference, so your know the sort of advice you need before you start looking.
For example, imagine you have saved or inherited $50k and just want an adviser to help you build an investment strategy for this money and not look at the rest of your situation. This very specific need would result in ‘specific advice’, or sometimes called ‘scaled advice’.
The alternative option is broader in scope. You might have $50k that you want to do something smart with, but you want to confirm what investment strategy is best and how this fits with your broader financial strategy. This is called ‘comprehensive advice’ or ‘comprehensive planning’.
The difference between the two can sometimes seem small, but there is an enormous difference in the output. Understanding this difference is the first step in getting the outcomes you want from financial advice.
In the case of specific advice, your adviser is only helping you invest money. If you ask an adviser for this type of advice, they will let you know their advice is limited to only how best to invest your money and isn’t considering any other aspect of your financial situation.
What this means is your adviser isn’t reviewing your plans to invest relative to your other goals . They’re not exploring whether investing this money might generate risks in other areas of your life.
Specific advice does have it’s place. It’s best when you are 100% sure a particular strategy is the very best thing for you to be doing, but you need some help to execute.
Comprehensive advice means your adviser is helping with your investment plan as part of your overall financial and lifestyle strategy. It means your adviser:
- is required to gather a full understanding of your overall financial situation
- will explore if investing is the very best thing to do with this money
- is not only limited to investing your money, but covers investing as part of your overall strategy
- will help you understand the implications of your investments
- is obligated to raise any issues, risks, roadblocks, or potential problems with your investment strategy
- will discuss any opportunities or issues in other areas of your financial situation (outside of your investment strategy)
- will help you understand how you can take advantage of these opportunities
Comprehensive advice will be more detailed and need more inputs. So it takes longer to put together and will generally cost more. However it goes further to helping you actually achieve your money goals.
How does financial advice actually work?
When it comes to financial advice, most advisers are different and approach advice in different ways. There is no one method, but at a bare minimum your adviser should cover the following steps:
- Get crystal clear on where you’re at now and what’s important to you when it comes to money
- Understand where you want to be in the future and what might change
- Help you understand your available options and how you can get to where you want to be.
- Ensure you understand the risks and downsides of any strategy or direction. This is important, because there are always benefits but also always risks/disadvantages
- Recommend a combination of strategies to help you get what you want
- Outline clear action steps. Often they will help you set yourself up to start working towards the outcomes you’ve planned for
- Help you understand how these action steps are going to get the outcomes you’ve planned for
No matter what the advice process, any advice should give you confidence in the direction you’re taking.
What else do financial advisers do?
When you work with a financial adviser, you can also use them as a sounding board when you’re making decisions. They know your broader strategy, so they can help you understand how opportunities fit into the big picture.
An adviser will also help you by working as an accountability buddy, to keep you on track and keep you moving forward. I’ve see what a difference having someone to keep you accountable to the goals you want to target can make. Personally I’m a bit of a coaching junkie, and I work with a number of great people in different areas. I have business coach, a multimedia coach, a mindfulness coach, a mentor, and other specialists like my accountant and bookkeeper.
Like any good coach, a financial adviser will keep you accountable and push you forward when you need it. They’ll also get you back on track if you lose your focus.
An adviser can also help you manage other areas of your financial life. They can save a lot of your time and stress when you’re dealing with other professionals like accountants, mortgage brokers, and lawyers because they speak the language. When you’re working through tax issues, buying property, setting up a will, or launching a business, your financial adviser can help. A good financial adviser will also focus on educating you about your options. So you can choose your path or direction with confidence.
This is an edited version of an article that was originally published on Pivot Wealth.