The Evidence-Based Investor

Do you actually need a financial adviser?

Posted by Robin Powell on December 20, 2017

A question I’m commonly asked is, do you need a financial adviser? After all, there are some excellent blogs out there (not just TEBI!) which tell you pretty much all you need to know about evidence-based investing. It’s also becoming increasingly easy to invest online in a broadly diversified portfolio of low-cost funds; as things stand, Vanguard’s new direct-to-consumer offering in the UK, it’s very hard, if not impossible, to beat.

The simple answer is no, you don’t need a financial adviser. That said, there isn’t anyone who wouldn’t benefit from good advice. Ideally, if you can afford an adviser, you should pay for one — assuming, of course, they have an evidence-based investment philosophy. You should also look, specifically, for someone with a financial planning background.

For me, the combination of evidence-based investing and proper financial planning, including cash-flow modelling, is the gold standard. With both on your side, you’re giving yourself the best possible chance of achieving your financial goals.

Another question to ask yourself is whether you really want to invest the time and effort in managing your own finances? You could probably write a perfectly good financial plan, put together an investment portfolio, and work out for yourself how much money you need to retire on. But aren’t there other things you’d rather be doing instead? I know there are for me.

In the sixth and final part of our series, Investing: The Evidence, I put the case for resisting that temptation to manage without professional advice. Please do share this video if you find it helpful.

 

It's not essential to have a financial adviser, but there are very good reasons for doing so. You should look for an adviser with an evidence-based investment philosophy and a background in financial planning.

 

Investing: The Evidence is a six-part documentary, produced by Regis Media in conjunction with RockWealth, a financial planning firm in Cheltenham. Have you watched the other videos in the series? If you haven’t, you can catch up here:

Part 1: Active investing

Part 2: Passive investing

Part 3: Factor investing

Part 4: Risk

Part 5: Behaviour

 

Related post:

Attaching a monetary value to financial advice misses the point

 

Let’s change investing for the better

Regis Media, which produces TEBI, works with financial advisers, asset managers and fintech companies who share our evidence-based investing philosophy. We produce content for all the major English-speaking markets, as well as Germany and the Netherlands. Get in touch via our website, and let’s change the global investing industry for the better.

 

Video transcript:

Our search for the truth about investing is almost at an end. You may be thinking you now know enough to manage your finances on your own. But everyone can benefit from having a good financial adviser — even people who understand investing inside out.

Personal finance writer Jason Butler, a former financial planner himself, says: “I use a financial planner, even though I’ve got all the experience in the world and I don’t need them to run money, because I value them helping me articulate what I need to do, holding me to account for the things I say are important. And also, if anything happens to me, my wife knows the number to call to help her.”

The important thing is to understand how an adviser adds value. It’s about much more than building an evidence-based portfolio.

The first thing a financial adviser can do is to help you work out your financial priorities and devise a plan accordingly.

Part of that plan will include an investment strategy, which entails identifying your capacity for risk and designing a portfolio with a suitable asset allocation.

Mark Vail, a financial planner and partner at RockWealth, says: “Everything we do is underpinned by a financial plan. The investment portfolios that we create for our clients drive those plans. Those plans are based on current lifestyle, future goals and future aspirations, and as part of providing a financial planning service, we get clients to think about retiring early. We can demonstrate that they can retire early or that they can spend an additional £10,000 a year than perhaps, before they met us, they were spending. That’s quite liberating and quite powerful.”

Because costs have a huge impact on your net returns, another responsibility of a financial adviser is to keep those costs to a minimum — whether it’s management fees, transactions costs or taxes.

Mark Vail says: “The very first client we moved out of what was an actively managed portfolio to an evidence-based portfolio — it was a portfolio in excess of £5 million — just in investment management fees alone we shaved £80,000 per annum off the costs that they were incurring. So that very first response was ‘Wow!’”

A good financial adviser won’t chop and change the funds in your portfolio, but they generally will rebalance your portfolio every year or so, to restore the original asset allocation.

And, perhaps most valuable of all, an adviser will act as your financial coach, ensuring that you don’t do anything that will harm your chances of achieving the goals set out in your plan.

RockWealth’s founding partner, Tim Horrocks, says: “Value is often perceived by an adviser as being investment performance, which is one thing that, as advisers, we cannot control or influence. Where we actually add value is in behavioural coaching, and having a strategy (whether that’s accumulation or decumulation). Particularly when people are reaching retirement, there are huge decisions to be made.”

Matthew Horrocks, another of RocWealth’s partners, says: “I presented to one client, just last week, who believed that they were needing to wait another ten years to retire, aged 65. And actually I could show them they could retire five years earlier than that. With the money they’d saved, the pension pension assets they’d built, and with the right investment strategy, they could retire five years earlier than they expected. The relief, the excitement from that client — the ‘Wow, I’m now gong to be able to spend another five years enjoying holidays and my family’! That’s why we do this job — it’s to see the smile on their faces when they realise they can stop working. Superb!”

So, however tempted you are to do it all yourself, it pays to have an objective expert with your very best interests at heart. And when I say it pays, I mean it pays. Research by Vanguard Asset Management has shown that a good adviser can add about 3% to your net investment returns every year. Vanguard calls this Adviser Alpha.

Over the course of your investing lifetime, Adviser Alpha translates into a very substantial sum of money.

Matthew Horrocks says: “Although the client is paying us a fee, the extra value we add above that fee more than compensates for it, simply because we’re reducing your potential tax bill and we’re ensuring that your investments are working for you. And there are those regular review meetings with clients that we have, to make sure that nothing needs to change fundamentally in their plan, because of tax changes, legislation etcetera.”

So, to summarise, you are more like to achieve your financial goals with the help of a financial adviser.

But beware advisers who see themselves as investment managers.

Choose one who believes in proper financial planning… and, of course, someone who bases their investment philosophy on hard evidence.

Mark Vail says: “If you have an incumbent adviser, who isn’t managing your money according to the evidence, ask the question, Why? And if you’re not happy, go and talk to an adviser who does manage money on an evidence-based basis.”

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Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector. Regis Media.

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