July 2021
Nirdev Desai, Head of Sales
PSG Wealth
Great achievements do not happen by luck, nor do they happen in isolation. Whether it is gaining a well-respected tertiary education, a beautifully designed home, or successfully conquering K2 in the Himalayas, achieving most goals in life will likely require the services and support of skilled experts. In a world where knowledge and insight continually evolves, a do-it-yourself approach is not the smartest strategy. Financial planning is no different.
“ Our relationship with money is a very emotional one. ”
Let me start by answering the question - is it worth it to pay for the services of a financial planner? The simple answer is yes. There is no doubt in our minds that financial planning offers incredible value, and I will use this article to unpack why.
The purpose of a financial planner
In its most distilled form, financial planning serves to help investors achieve their financial goals. While there are tried and trusted tools that can be used to achieve these goals, everyone is unique, and consequently, every financial plan should be too. A financial planner will give careful consideration to an individual’s unique circumstances to ensure their financial plan is robust, executable, understood and suitable for their specific goals.
Using the services of a financial planner does not simply equate to buying a fund or an investment product. Rather, a financial planner will take your circumstances into account and then advise you on the most suitable approach to realising your goals. When selecting financial products, there may be a good reason why some products are more suitable for you than others, and it is the role of the financial planner to guide you on such matters when creating your financial plan. Your financial planner is also there to make the necessary changes to your plan over time to ensure it remains suitable to your needs as your circumstances change.
Our relationship with money is a very emotional one. In a world of instant gratification, combined with newsfeeds warning of the next market sell-off, the best financial plans can be easily scuppered by fear and greed. A fundamental component of executing a financial plan is having a long-term lens when it comes to wealth creation, and short-termism can completely erode the best-laid plans. A good financial planner will help you manage your behaviour with money to mitigate these biases.
The proof is in the research
There are two well researched studies that prove the value of using a financial planner. The first (Dalbar: Quantitative Analysis of Investor Behavior: 2016 ) shows how investors’ behavioural biases cause them to collectively lose between 1 and 2% per annum in returns from their portfolios. While this may not seem like much, it equates to, a R1 million investment foregoing close to R1 million in returns over a 20 year period. An (extreme) example of investors having a knee-jerk reaction came at the beginning of the Covid-19 pandemic with the fastest sell-off of equities in history. Propelled by fear, some investors ran to cash at the worst time, which has since proven to have been a catastrophic mistake. For those who did not succumb to the fear, a R1 million investment in an equity portfolio could be worth 52% more – see the example below.
The second study is research from Morningstar that investigates whether a good financial planner can enhance the value of a portfolio , rather than just ensuring you do not lose money. In the study, they tried to determine whether financial planners add value over that which can be bought in the market. In essence, various financial assets are freely accessible to anyone, so by using a financial planner, does once get enhanced returns that outweigh the fees charged? In short, the additional returns that advised clients achieve was quantified as gamma – and this gamma value was estimated at around 3% per annum (half of which is attributable to behavioural coaching), more than the long term outperformance of well-respected active asset managers.
In summary, while there are many examples of successful investors who have not needed the services of a financial planner, there are many more that have used a financial planner and continue to do so as they reap additional value. Even though you can design and build a house by yourself without being an architect, you need to as whether you could benefit by leveraging off the expertise of a professional. Similarly, even with all the self-help financial planning content available, ask yourself whether it is worth putting the possible added value that can be derived from a skilled financial planner at risk, just so you can be a hobbyist.
In this edition of The Wealth Perspective, Chief Investment Officer Adriaan Pask explores the pivotal role a financial adviser can play in helping you reach your financial goals. Head of Sales, Nirdev Desai, reiterates the added value a financial planner can offer an investor. Then Madelein Steenkamp, Legal Specialist in Technical Advisory Support, explains the process of winding up a deceased estate. With retirement on the horizon for some, our Head of Actuarial and Product, Jan van der Merwe, provides a handy guide to annuity products and their suitability. Finally, Technical Legal Adviser, Marguerite Marais tackles the realities of retrenchment and what options are available to you.
Read moreSubstantial evidence shows that the global population is struggling to build sufficient reserves for a comfortable retirement. However, investors who make use of the services provided by reputable financial advisers tend to make better financial decisions. Skilled advisers support clients to approach saving in a more disciplined fashion and make better decisions.
Read moreLosing a spouse or family member is traumatic enough; being unprepared for the financial realities of death can make it even more devastating. The moment a loved one passes away, their deceased estate comes into existence and must be wound up in terms of the Administration of Estates Act, and – depending on the nature of the estate – the winding up process can be lengthy. In this article I will unpack the various steps of this inevitable process.
Read moreRetirement is an important milestone that many of us look forward to with anticipation. Having built up a working lifetime’s worth of retirement savings, selecting the right annuity option to meet your income needs in retirement is important. You need to take the time to consider your income options carefully, which can be a daunting prospect. In this article, we explore the features of annuities to provide you with some guidance.
Read moreUnfortunately, given the turbulent time we are in, retrenchment has become a reality for many. Although often unexpected, is there a way to rebound from such a traumatic and disruptive event?
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