The value of advice

Am I getting value?

It’s only natural to ask that question when you spend money on anything. Whether its buying groceries or choosing a lawyer, we always want to feel like we are getting good value.

The same question should be asked about financial advice.

Hiring an expert financial adviser to make strategic decisions when the consequences are high, the situation complex, and the available information confusing, always makes good sense.

Some of the greatest benefits of expert advice, are that they can help investors to…

• know how to use their wealth to lead a very satisfying life,
• know they are balancing the benefits of spending in the short term against their requirements for it to last, and
• trust the process and the people involved so they are freed from both worry and regret.

How does a great adviser deliver these benefits?

An analogy (written from the perspective of an adviser) probably explains it best.

We (advisers) are like a sea captain and our clients are our passengers. The passengers talk to us about their ideal destination and we select a very seaworthy boat appropriate for the journey. The plans we create are like a map. There’s no sense in setting off on a journey without knowing where you are going. So, with our plan in hand, we set sail.

But as sure as anything, the tides, currents, and winds blow us off course. Sometimes this is gentle, sometimes it is strong, but occasionally moving off our plotted course is a near certainty.

As an experienced captain, we anticipated this. So, to keep things on course, we regularly do three things.

1. We check with the passenger to ensure they still want to journey to the same destination.
2. We make an accurate assessment of where we are now.
3. We take corrective action, when needed, to get the passenger back on course.

In the world of financial advice, plans can be underfunded or overfunded, and a degree of drift is normal and acceptable. There is no sense oversteering. But at a certain point, we will find clients are at a real risk of under spending or overspending their wealth, either because planned cashflow did not marry up with reality, or because markets performed better or worse than expected. Over the course of time, we often find our clients’ goals and objectives have also changed. How were they to know with certainty 5 or 10 years ago, what they would spend/save/need today? They weren’t, so some adjustments over time are almost inevitable.

As the captain planning the voyage, we are inevitably dealing with two uncertainties.

1. Uncertainty about the winds of the markets
2. Uncertainty about the final port of call

Nevertheless, if we consistently take time to discuss with our clients their goals and desired outcomes, and we regularly assess how their plan is placed relative to those goals, we can make the small course adjustments necessary to get clients back on track.

If the plan is performing better than expected, we can discuss with clients where additional money can most improve their life, or we could consider removing some volatility from the portfolio.

Likewise, if we have run into rough weather, we can consider what changes we could make to get the plan back on track, whilst causing the least possible discomfort. There is no right answer and it depends on every client’s circumstances and point of view.

To extend the analogy, we find that if we had been able to predict with full accuracy all of the weather along the journey, we may have picked a different boat. And occasionally on the journey, we might see another boat sail by better suited for the weather of the day. This doesn’t bother us, and we don’t want it to bother you. We have chosen a boat that is seaworthy and has come through every storm since the sea of capital markets was first sailed. It has been chosen because, regardless of the conditions ahead, we are confident this craft will get us to our destination.

It was the Cheshire Cat from the wonderful story Alice and Wonderland that said, “If you don’t know where you’re going, any road will take you there.” In our experience, the only way to fail on this journey is to do two things:

1. To not know where you are going. In essence, to not have a plan, or worse, to have a plan only to “make more money.”
2. To anticipate only fair weather along the journey.

It’s our job to ensure all our clients are prepared to be successful during the ups and downs of a long-term investment plan. With a plan in place we help them navigate even the roughest of seas to arrive safely at their chosen destination.

This is the true value of advice. It’s providing a map to help clarify where it is you want to go. It’s providing the expert navigational skills to help you get there. And it’s giving you the peace of mind that you will successfully complete the journey.

Ben Brinkerhoff
Head of Adviser Services