I’m serious. It’s not that hard. So many people in the world of finance and investing try to make it sound really difficult because they want to sound clever.
Think of how much you would spend on financial help. Your financial advisor will charge you about 1% per year; managed investment strategies could cost 1.5% or more per year; accountants and tax advisors can cost thousands, and let’s not even get started on private banking or asset management fees. When there are hundreds of index funds available with fees under 1% and direct stocks or bonds that you can access through a simple app for the price of a coffee per transaction, think of how much you could save!
But, like most of the boring/confusing stuff in our industry, this is just numbers. Allow me to be a bit facetious for just a moment…
Try applying the same logic to your own profession. How much (in pure numbers) would your clients, end users or employers save if they just cut you out of the equation and did it themselves. Sure, for some professionals, the training required would be greater than others, but the way to save your hard-won pennies is surely always to go DIY. For some reason, it sounds ridiculous when we talk about buying medical supplies cheaply online in order to perform self-slicing sight-saving surgery at home in your spare time, but when we talk about planning for your financial future and maintaining or modifying your financial strategy over the long term, we suddenly care more about the bottom line than hiring a qualified and regulated professional.
To be clear, I am not trying to draw an equivalence between financial professionals and specialist surgeons. Let’s be honest, while financial professionals are trying to preserve or improve your lifestyle, they can hardly claim to actually be saving lives. While there are plenty of Youtube videos about medical procedures, surgery would not be a great subject to start practising as an amateur.
Let’s look more objectively at what you are paying for with a financial advisor. Will your financial advisor get you better returns than the stock market?
No. They won’t.
If a financial advisor tries to tell you that they will get you the best returns or they will beat the market or they have access to X, Y or Z that will make your money grow bigger, better, faster then stop them and ask them if they think their competitors would say the same thing. It is not the job of an IFA to make the biggest returns for their clients. At best, if your IFA is claiming they can get the best returns for you then they don’t understand their role. At worst, they are lying to try to convince you to pay them. Either way, that’s not someone you want in charge of your money.
If you take the time to learn about how to identify your financial goals, build a financial plan and reassess it regularly over time, without emotion, you will save yourself about 1% of your portfolio each year that would otherwise be paid to your IFA. So is it worth your time?
The role of a good IFA is threefold:
The education bit is easy to calculate in terms of opportunity cost. You can read books and even take exams if you like that will give you the equivalent level of knowledge and ability to be your own financial advisor. Of course, as with any professional study, there is a financial cost to this and a cost in terms of your time and effort. You need to decide if the immediate saving relative to hiring a professional is enough to justify the investment of your time and money.
Harder to quantify is the attention aspect. A good IFA should always be referring back to your objectives and their primary consideration will be for your money and your goals, even when other things in your life might seem more important to you at that moment. Think of them like a personal trainer, who will be knocking on your door to get you up and out for a jog, even when it’s cold and you feel like staying in bed for a while.
The really abstract bit is objectivity. We often say that emotion is the enemy of investment. Best case scenario would be that an investor could buy-low and sell-high, but human emotion drives us to do the opposite. We might be scared after a crash and sell when things are about to recover. We feel euphoric when everything goes our way and throw money into the market when it has the biggest chance to turn negative. Sitting back and avoiding the emotion is the toughest part of an investment advisor’s job, but it is bordering on impossible with one’s own money.
Coming back to the initial question – why not do it all yourself? You could save yourself more than 1% per year of your investments. Over time, that could really add up. Dealing with all your financial matters alone can be really cheap in cash terms, but you must be prepared to invest time, effort and no small amount of stress.
The best financial advisors will not just tell you, they will teach you. Over time, you should be feeling more and more comfortable with your money, to the point where you feel really confident to do most things yourself, but at that stage, you might decide that you just don’t want to.
As with every financial decision, when it comes to whether you should hire an advisor or go it alone, you should be well aware of the options, but understand all of the costs.