Written by Ed Gibson, Head of Financial Services

A question that I suspect every client has asked themselves at some point or other, probably when their investments have gone down in value or when they are advised not to do something that they quite fancy doing. As the number of tools available on the internet to help people invest their money and the number of direct to consumer providers both increase, it is a question which may be asked more frequently.

This is not quite the same though as “what is a good financial planner”. The questions are similar however, where to this last question one could point to such hallmarks as :

• A good financial planner listens;
• A good financial planner is more interested in me than my money;
• A good financial planner takes time to understand what is important to me;
• A good financial planner is someone I can trust;

None of this actually answers the question posed. To all these points, except for maybe the first one, you could easily replace “A good financial planner” with “I”

So to the question “what is the point of a financial planner”, the most obvious answer is probably the technical expertise that one would expect from a professional, be they planner, accountant or solicitor, and which would take up too much of your own time to obtain.

Do you want to spend your spare time reading through the legislation surrounding Annual Allowances and Lifetime Allowances, or would you rather spend this time with your family and doing what you enjoy? The value here is primarily a “negative carry”, in that it is emotional rather than quantifiable, although the quantifiable aspect may still be there in the difference between the cost of getting an expert to do it and the cost of getting it wrong yourself.

Vanguard, a major global investment company, have published a body of research attempting to quantify the value of a financial planner. A couple of their points which we have written on before are worth a brief revisit:

Rebalancing

We’ve written on this subject before and it is something which we believe strongly in. It is a discipline and, like many other disciplines, easy to agree with but not always easy to keep to.

The Vanguard research concluded that a portfolio allowed to “drift” compared to one which was rebalanced every six months, was likely to consistently have a higher equity weighting producing higher volatility but with slightly lower returns. 

Helping clients stick to the discipline of rebalancing is only part of the answer though. Using cashflows, tying rebalancing in with using tax allowances, recognising when a rebalance is needed rather than just “tinkering”, are all aspects where the planner can help to enhance the discipline of rebalancing by reducing the costs associated.

Behavioural coaching

Always a difficult one both to explain and to quantify, there have been a number of studies that have tried to look at the cost to an investor of their own behaviours. A well reported study in the US by Maymin and Fisher in 2011 estimated that the average US investor investing in funds sacrificed about 1.9% per annum by poor market timing decisions.

As has been said before, the problem with long term investing is that it is made up of a series of short term reactions to what is happening around one. Accepting that in a diversified portfolio there will always be at least one investment which is “not doing very well” at whatever point you look at it, is an important step towards a successful investment experience.

If you would like to discuss your investment options, please get in touch at Ed.Gibson@shawgibbs.com or call 01865 292200.