Who needs a Financial Planner?


Correct answer : No-one.

Notes : This is correct on the same basis that no-one needs a doctor, a lawyer or a politician. Each of these professions fails to meet the “basic needs” criteria.

The same argument could be put for trade professions such as plumbers, brick-layers, truck drivers or mechanics. It is quite possible for any able bodied and clear minded individual to train or educate themselves to the point that they can deal with all but the more technical aspects of these roles.

However, not everyone has the time available or is interested enough to be bothered bringing themselves up-to-date with fuel injection systems, political party policy statements, water flow analysis or correct hydraulic clutch operation. There may be a few people who couldn’t eventually gain this expertise but on the whole, it is just that most of us choose not to.

Here is an article from an industry magazine, ‘Money Management’, titled “Going it alone : share trading and direct investments“. It raises a number of points on the issues surrounding the choice of whether or not to obtain financial advice.

There is a fundamental thought underlying this choice, and it relates to just what you think a Financial Planner is going to do for you.

If you thought or think that a planner is going to be able to identify the absolutely best investment available to make you the most money, while ensuring that you avoid all of the risks out there then we have found a reason to NOT use a Financial Planner! Let’s get this very, very clear. No-one is going to be able to do this for you – not a Financial Planner, not an Accountant, not a stockbroker, not a Hedge Fund manager, not a Bank manager, not your neighbour and not even that very clever friend who has ‘creamed it’ with their own investment activities.

The vast bulk of the financial world is tied up with the idea that it is somehow possible to use clever research, technology, strategies or tactics to obtain high returns with low risk. The Great Banking Panic of ’08  was arguably caused by a whole raft of products and strategies that were based around that fundamentally flawed idea – think of those wonderful CDO’s (who cares what it stands for, the phrase is now in the public domain and can be used to identify any overyly-clever financial wizardry), which were priced on a black-box risk model that didn’t even allow for a material drop in residential house prices! Can you believe that anyone ever based an entire section of the financial industry on the idea that the average home price would not move to show negative annual returns? And yet, it happened.

We (if you will forgive my use of the Royal Prerogative) have a different view of what a Financial Planner can do. Here is a snap-shot (feel free to comment) :

  • Clarify your objectives – Most people really don’t know what they want to aim for financially. A planner can help you move from a vague “financial independence” to a more precisely identified goal.
  • Clarify your financial firepower – It’s one thing to have an objective but  having an achievable objective is another thing altogether. Again, most of us don’t really want to see our limitations spoken out loud or committed to print – but that is one of the annoyingly beneficial jobs that a planner can do for you. If you don’t like the limitations set out then you discuss just what can be done to expand your possibilities – and at what cost or risk.
  • Clarify your thoughts on risk – Just what is ‘risk’? Can it be measured and how do your choices alter that risk? How does your version of risk vary from the planner’s version? From the property/share/fixed income markets’ view of risk?

Notice how none of these issues have yet impacted on ‘independence’ or fees or any of the latest media hot-buttons? However, the next steps DO involve entry into the forbidden zone of competing commercial interests…

  • Establish your options – Given all of that annoying, costly, pointless discussion on objectives, capability and risk – what are the options that are available to you now? Here is where independence or bias or whatever begin to have the potential to disrupt the appropriate flow of advice – but it is still possible for the average person to use basic caution and listen to the alternatives that are set out. You just have to remember that a stockbroker is going to recomment shares, most financial planners will recommend managed funds, a real estate agent will recommend property and the traditional bank manager will recommend the traditional term deposit (ok – i know that these roles are merging all of the time but try to suspend judgement and stick to the broad principles here).
  • Work out a reasonable basis for measurement and review – How will you know when your strategy/investment/idea has worked? How often will you check up to do the measurement and when you do, what exactly is it that you are going to measure?

Now we come to the BIG BIT…

  • Taking an action step – here is where all of those difficulties arise… If your stragegy involves making an investment, you are going to incur costs and charges. Who is going to benefit from those fees? Everything (and let’s make this very, very clear… EVERYTHING involves cost somewhere) will involve the flow of funds and commercial interests will be pretty strong in determining just where that flow ends. This is the bit that people are considering doing themselves.

If a Financial Planner needs you to do it with them before their advice will work then you have a problem. This is why some folk are trying to do things themselves. It is a misunderstanding of just what a planner does. Part of that problem is that many groups that employ Financial Planners just don’t see this as being the role of their planners. They see the role of their planners as being a ‘channel of distribution’ of some products or services. For example, some planners are not even allowed to charge for a ‘Strategy Report’, as it does not involve the sale of a product that will earn their licence provider with extra income. This brings about the perception of bias and results in the average person taking on the whole job, rather than focussing on the areas in which they could reasonably save money or cut costs.

The other reason is a more cyclical one… We have just been through (and still have some way to completely move away from) a generational event in financial terms. This is a serious global credit squeeze, and the bulk of the community is understandably acting as if this cyclical, transitional period will last forever. It won’t. It has happened before and it will happen again. Various commercial interest (and disenchanted folk) are pushing for you to alter your strategies so that everything is based around what has already happened. This is a behavioural trap, and one that Fianancial Planners should be aiming to help people cope with.

So, the More Correct Answer  to “Who needs a Financial Planner?” is : Most folk.

If you doubt me, ponder this one…

“Does a Financial Planner need a Financial Planner?”


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