7 Deadly Sins of Retirement Planning – #6 Ignoring the value of a financial planner.

At some stage in your life you have probably tiptoed through your house in the early hours of the morning and, without switching on the lights, carefully made your way to your room. You may have even bumped your toe along the way or even stood on an errant piece of Lego, but you successfully made your way. Obviously, switching on a light or using a torch would have made the manoeuvre quicker, safer and less “risky”. In the same way, you could possibly plan the way forward to your own personal financial destination without the assistance of a financial planning professional. But, would choosing the correct financial advisor, be tantamount to “switching on alight” or using a “torch” and would his or her assistance would enable you to reach your destination faster and with less financial harm along the way?

Is advice worth paying for?

The prudent consumer would, when parting with his or her hard-earned monies, ask the question whether that spending is worth it?  During your retirement years this is a question that demands a lot of attention and should be addressed on a regular basis. It is, however, relevant in all walks of life, whether it be the decision to buy a R100 T-shirt imported from China (that may lose its’ shape after 5 washes) or to buy the more expensive R200 t-shirt (that will retain its’ shape even after 20 washes).  The real question is then really around the value obtained from the amount of cash you lay out for a particular product or service. Although cash flow is always a consideration, the wise money will remember “Cheapest is not always best”.

Does a financial planner cost you money or does he add value?

Recently Vanguard (a USA based investment company with more than 20 million investors in about 170 countries) performed research that shows that an advisor not only adds peace of mind, but also may add about 3 percentage points of value in net portfolio investment returns over time. Clearly then a discussion concerning fees would be pertinent with your planner if their planner fees on your investments are an amount of 3% per annum or more i.e. 3%-3% =0.

But what about the other benefits and guidance that a planner can offer you on your financial path going forward?  

We know that once a client has provided the required information to enable a qualified planner to perform a basic estate analysis certain planning techniques and recommendations can be made to reduce estate costs that are mathematically measurable and make recommendations that can ensure the quick and smooth administration of your estate and the protection of the assets of your estate from creditors and maladministration.

But how do you measure the peace of mind that is produced when a planner assists you in bringing order to your financial matters (e.g. regularly providing a summary of investments, tax certificates) and reviewing your financial situation against goals and objectives you have provided?

As a financial coach, a planner can be of tremendous help in providing some objectivity and even offer valuable options and alternatives to prevent the making of emotionally charged financial decisions where those decisions can be detrimental to your financial plans.

So, yes, a financial planning professional will charge you a fee and/or commission but he or she will also, in all probability during your business relationship, provide a value in excess of the fee charged.

Are you getting that “excess value”? 

If you feel that the value you are getting is not justifying the fee you are paying the crucial question that you need to ask your planning professional is:

What services are you providing for the fees I am paying? (If you are told that you are not paying any fees or commissions, an urgent review of his or her appointment as your planner is needed!).

Typically, annual investment fees payable to the planner are between 0.5% to 1% (excluding VAT, where applicable) of the investment value under management. Commissions are normally paid on insurance products and are relative to the product and should be disclosed to you prior to the commencement date of the product.