You are here:Article Detail 31 July 2014

Don’t see your financial adviser as an investment guru

Personal Finance

You should not regard your financial adviser as a person who can pick the best fund manager for you but rather someone who can coach you to achieve your investment goals, the Financial Planning Institute’s conference heard this week.

Anne Cabot-Alletzhauser, who heads the Alexander Forbes Research Institute after many years in the asset management industry, says the problem with identifying skillful managers is that there is absolutely no basis for knowing whether their specific skills will be rewarded by the market in the future.

She says financial advisers wrongly believe they can be good investors for you, but their biggest service should be being your financial coach.

Cabot-Alletzhauser says in South Africa there is a cult following active fund management.

But one day one manager is the top performer and the next day another manager is the top performer, and typically advisers and investors focus on very short performance track records, she says.

You may wait 10 years to establish that a fund manager is a consistently good performer only to find that it has grown so big that it is no longer able to produce top performance, she says.

Rather than trying to choose the top performing fund manager for you, your financial adviser should keep you invested, help you handle your debts and advise you when to put the foot on the spending pedal and when to take it off, she says.

Cabot-Alletzhauser says investing is easy because it is about managing risk at a reasonable fee, about getting your asset allocation right and staying in for the long term.

Warren Ingram, an independent financial planner and winner of last year’s Financial Planner of the Year award, told the conference that a professional financial adviser can add value for you by helping you to stick to your long-term goals,

Getting you to invest and stay invested is the heart and soul of financial planning, Ingram says.

What a great financial planner does, he says, is help you to be comfortable with your investment decisions, to not get stressed and to save you from making bad decisions.

Gerhardt Meyer, a member of the international Financial Planning Standards Board Regulatory Advisory Panel and the head of strategy at financial planning company acsis, says advisers will in future have to offer you a value proposition that is not simplistically related to investment returns only, but is related to understanding and meeting your financial needs holistically.

Phil Billingham, an expert in the Treating Customers Fairly legislation that was implemented in the UK, says that when it comes to treating you fairly, advisers should not promise you that you will never lose money on your investment or that you will always be ahead of the market.

Instead, an adviser should be regarded as having treated you fairly if the product or investment into which you have bought behaves as you were led to expect it would.

Billingham says when advisers consider risk they will not be able to just point out to you the volatility of an investment product but will have to engage you and ensure you understand the level of risk involved.

Billingham says that to introduce fairness, advisers will also have to educate you about the possible outcomes of investing in a particular product – for example, that your capital could be eroded very quickly.

Kim Potgieter, a financial planner at Chartered Wealth Solutions with a fascination for the relationship between psychology and money, says your financial adviser should not always be focused only on the returns you can earn from your money.

At times, an adviser may also need to consider the returns you expect from your life and the role your money should play in achieving your goals.

She says a good financial planner should connect with you and should develop a plan for you that resonates with you so that you will be motivated to stick to it.

 
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