There is often a vast gulf between what people think financial advice is all about and what it actually is. The popular view that advice is solely focused on picking good investments is akin to the view of a GP as someone whose role is purely to prescribe pills.
We could come up with an exhaustive list of reasons on why it is beneficial for you to seek financial advice, however, in the essence of time below are just 2 of those reasons.
Reason #1: Your life is undergoing a fundamental change
If you’ve lived long enough, you will have learnt that life is not a straight road. We start off on one path and then something happens. It might be a seemingly incremental occurrence – we meet someone, we stumble on an idea, we lose someone or something. But things change.
Initially, we think we can absorb that change with little adjustment. But sooner or later we realise this is going to take a complete alteration in our course. Suddenly, we find our priorities are reordering themselves and what we used to value little or not at all is now our number one concern. Something has fundamentally altered.
Now, the nature of fundamental change is that it rarely impinges on just one area. A change of career might mean having to take a cut in pay. A second marriage might require a larger home to accommodate all the children. An illness might force an extended sabbatical from paid work. A decision to quit a dead-end job might necessitate a return to tertiary education. And, of course, retirement can be the biggest transition of them all.
Sometimes, even a transition that appears to be an unequivocal step up, like a move to a higher paying job, can go awry because we discover belatedly that we have struck the wrong balance between financial and other considerations.
The point is that the material considerations of our lives are inevitably bound up with the emotional, the physical, the intellectual and the spiritual. Even a philosophical realignment could lead us to reassess our assets and liabilities. Everything is bound together, and it is hard to manage change successfully without a holistic approach that provides structure.
This shouldn’t really be surprising, given the connectedness of everything, but it is astounding how many people think they can ring-fence one corner of their lives from a fundamental change elsewhere and think everything can go on as normal.
The virtue of structure
Providing that structure amid all the random connections and collateral impact of change is what financial planners do. Few of us can live inside the turmoil of life’s turning points, all the while successfully managing short-term change and keeping focused on long-term goals.
We need someone to help us clarify where we are, how we got here, where we want to go and how we are going to get there. We can’t fall back on old ways of thinking, because we’re finding ourselves in a completely new landscape. Put another way, we’re in the middle of a complex gear change and we need someone to look at what might be coming over the hill.
Anyone who has been through a fundamental life change knows there are a LOT of moving parts. There are existing obligations and other people to consider. But there are also new commitments and goals that can clash with those established ones.
Yes, the financial challenges are really just one of the most visible manifestations of that turmoil. But, oddly, people often find by acquiring a clear grasp of the material issues involved with change and an understanding of their options, the emotional side gets easier to deal with.
A divorce, for instance, is always wrenching, particularly when there are children involved. And if there is a new relationship, with another set of children, the considerations multiply. An overwhelming emotional crisis coincides with a financial one.
Providing headspace
While a financial planner is not a psychological counsellor, they can help clear some headspace for you to deal with the mental transition by making the physical and financial transition easier and by providing the plan and structure for you to achieve it.
Changing careers is not as stressful as a divorce, but nevertheless can be hugely challenging. Old cosy certainties give way to questions about where you fit and what your value is. You may love the change, but it might come at the cost of a significant downward shift in compensation.
Again, the emotional is tied up with the financial. But it’s only by getting those underlying material structures adjusted, that you can find the space for the non-material side of change.
Change is one of the few certainties in life. None of us can avoid it. But we can make these transition points easier with the help of someone who is not on the rollercoaster with us, and who can see what’s awaiting after the ride, to help us through it.
Reason #2: Your life is getting complicated
A common feature of growing older is our lives become more complex — not out of any conscious design but often as a result of circumstances.
This complexity is not necessarily a bad thing. Naturally as we get older, we tend to accumulate assets and liabilities, responsibilities and obligations, interests and commitments. The ornate and multi-faceted nature of life can add to its richness.
But with complexity comes challenges. There are inter-dependencies in systems that mean a change in one area can have unexpected and unpredictable consequences elsewhere. For instance, an individual who buys an illiquid asset as a long-term investment could experience challenges in meeting liabilities that demand regular and predictable cashflows.
In other words, complexity means you have a system with lots of moving parts. Changing something impulsively in one area often necessitates adjustments elsewhere. As complexity is incremental, it can be difficult for the person at the middle to see the bigger picture.
This isn’t a reflection on the individual, mind you, but a reflection of the fact, that none of us — however smart we are and regardless of our credentials — has infinite cognitive capacity to recognise every possible permutation and combination in the material systems that build up organically in our lives.
And remember that as well as the internal drivers of change, there are any number of external influences that can be difficult to keep track of. Regulatory change, tax law amendments, shifting depreciation regimes, technological disruption and rapidly evolving economic environments all can further complicate each individual’s capacity to navigate complexity.
Sharing the cognitive load
This is why complexity is one of the key reasons people seek out a financial planner. Alongside the need to meet distant financial goals, there are the immediate concerns of managing cash flows, meeting existing liabilities, controlling risk and gaining clarity.
Rather than attempting to make predictions, what good advice does is provide a structure that allows for flexibility so that changes in one area of one’s material life do not create unforeseen problems elsewhere. Life-long cash flow modelling, a sensible asset allocation and regular rebalancing are some of the tools to achieve this, alongside a risk management framework.
Of course, uncertainty can never be totally eliminated. We had a reminder of that with the sudden appearance of the COVID-19 pandemic. Externally, laws can change, economies can slow, new technology can upend established ways of doing things; internally, changes in lifestyle arrangements, family circumstances, health and income can force alterations.
What an adviser provides each client is not so much certainty but a set of tools to provide a greater feeling of control, a structure to manage the complexity and a confidence that they’ll be OK. The tangible benefits of better investments, tax structures, cash flow and risk management combine with the intangible benefits of a sense of security and peace of mind.
But dealing with complexity is easier if you grasp what you can and can’t control. No-one can control the ups and downs of markets or the pendulum of regulatory, technological or economic change. We can, however, create a plan that recognises there inevitably will be surprises and that builds into the system ways that allow us to deal with change effectively.
In summary, a good financial planner teaches you how to live with ambiguity, uncertainty and complexity rather than trying to solve every problem at once and predict the future. The adviser helps you to clear away some space amid the growing tangle of your life and provides you with a plan to manage change and complexity.
The outcomes are clarity and confidence. That’s an investment worth making.
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