One of the hardest things about working in the financial services industry is managing the gap between what people think they are paying for when it comes to ongoing financial advice, and where we as financial advisors actually provide value.
This gap arises from the fact that while the value we provide is sometimes quantifiable, more often it’s not. More often, it leans towards being highly qualitative.
At HPH Solutions we’ve sought to address this gap by providing a quantitative measure of the qualitative benefits our advice offers. But this is unusual in the industry.
This article is my attempt to close the gap for people who don’t use our services (and maybe make life easier for all my fellow financial advisors out there)!
Here are six areas where people working with financial advisors think they’re getting value for the money they’re spending, versus where the real value lies.
1. Picking clever investments
This is the area where people are most likely to pay high fees, and where those high fees create an expectation that can’t be delivered on.
It’s easy to sell the idea that complex investments with higher fees give you access to smarter people and unique market research to deliver higher returns. But the reality is, if ‘consistently outperforming the market’ was just about paying more money to smart people to leverage data to make more money, everyone would be doing it!
Where the real value lies: You don’t need to try and game the market or be tricky with your investing. You simply need to make a commitment to be in it for the long term, and trust your advisor to help you find the balance between putting aside enough for the future without shortchanging today. You want a plan that is sustainable, not reliant on tricks.
2. Accessing special products
In a similar vein to the above, paying high fees to access special products and private placement investments sounds good in theory but they rarely deliver at a level that justifies the cost or risk of accessing them.
Where the real value lies: There’s always a trade-off when investing, you pay for your returns by accepting risk. The real value an advisor brings is helping each person to identify the risks worth taking for them.
3. Accessing knowledge they don’t have
It’s very easy to sell the idea that we as financial advisors know more than you and for that reason, it’s worth paying fees to access our knowledge. But my experience of the people I’ve worked with is that they are generally pretty smart and already have a good handle on their financial affairs.
Where the real value lies: It’s one thing to be smart and fairly certain the path you’re on is going to help you meet your goals for both now and the future. It’s another thing to be sure. This is a key area that financial advisors provide value. We look at where you are now. We look at where you want to be in the future. We work with you to form a plan to get from here to there. And we have the knowledge and expertise to give you peace of mind that the path you’re on is going to take you where you want to go. (And we’re also able to tell you if it’s not!) Time and again we are told by our clients that this level of certainty is priceless to them.
4. Telling them what to do
There’s nothing that upsets me more than hearing someone say they are doing something from a financial point of view simply because they were told to (and they have no idea of the ‘why’ that sits behind the strategy). It also frustrates me when people are given great advice about what to do, but years later haven’t acted on it.
Where the real value lies: You want a financial advisor to give you information that is relevant to your situation, to help you understand the implications of that information, and help you make decisions based on the ‘why’s’ that are important to you. This ensures you’ll follow through on the actions required of the decisions you’ve made. You also want some accountability – someone chasing you up to ensure you’ve followed through.
5. Calculating an optimal result
If you simplify a financial plan to just maximising the numbers, it becomes one big maths puzzle with a single solution. But here’s the problem with ‘optimal calculations’ and single solutions – they don’t take into account the psychology of the individuals involved.
For example, I have a friend who is completely fascinated by the concept of investing and recently asked my advice on the best things to do with his money for his particular situation. My ‘optimal calculation’ advice involved putting no money towards investing whatsoever.
Where the real value lies: I knew my friend would not be able to stick to a ‘no more towards investing’ plan I gave him, no matter how perfectly optimal it was for his situation. Why? Because that plan wouldn’t allow him to scratch the investing itch he had. So I created a plan that allowed him to scratch that itch in a way that would satisfy his curiosity, while still facilitating a sustainable result going forward.
6. Creating balance sheets and reconciling past spending
There was a time when preparing for a meeting as a financial planner involved printing pages of reports about what happened over the past 12 months. And yes, it’s great to know where you are right now: what you’ve got, how much you’re earning and where that money is spent. But …
Where the real value lies: If you only ever operate in the past and the now, then you’re going to struggle to build something meaningful for the future. Where are you going? Where do you want to be in 5, 10, 20 years’ time? That’s where a financial advisor working with you in an ongoing fashion really comes into their own.
The true value of financial advice
There’s no secret sauce to successful investing or effective long term financial management. You can’t boil a financial plan down to simply maximising the numbers; treating life like one big maths problem that has a single solution. A sound financial plan is something that gives you the means to living the life you want to live. This means there are as many correct answers to the problem as there are individual people.
A good plan is a sustainable framework that provides clear direction while also staying flexible enough to adjust to personal situations.
And that’s where the real value of financial advice lies: in delivering a quality of life, supported by quality numbers.