THE IMPORTANCE OF HAVING A FINANCIAL PLANNER

The Financial Planning Institute (FPI), the governing body of all professional financial planners in South Africa, defines financial planning as follows: “Financial planning is the process of developing strategies to assist clients in managing their financial affairs to meet life and financial goals. The process of financial planning involves reviewing all the relevant aspects of the client’s current situation and comparing them with the client’s desired situation, and designing a plan to assist the client on their journey of financial independence.” This description highlights the importance of having financial goals, being part of a process to analyse your current situation and determine what you would like your financial situation to be in the future. It also emphasises the importance of having a plan to assist you in reaching your financial goals. Asking yourself the following important questions will help you assess whether you need to engage and have further discussions with your financial planner:

? Are you confident that you fully understand your financial position as if today were your retirement day?

? Do you understand how much is enough to sustain you through your retirement years?

? Do you have a clear picture of your dependants’ financial position if you were to pass away today?

If your answer to any of the above questions (and similar questions relating to your personal finances) is “no”, then you need to speak to your financial planner. Your responses to these questions are vital to enable your financial planner to consider the way forward, as part of our comprehensive financial planning process.

WHY DO YOU NEED A FINANCIAL PLANNER?

The role of a financial planner is to address any potential financial gaps you may have, like those listed above, and to construct a financial plan that translates into tangible plans and strategies to help you achieve your financial goals and dreams. Having a clear strategy and with your goals documented in a lifestyle financial plan, shifts the emphasis from your idea of investment risk to the lifestyle you wish to lead in the future. Through this process the following aspects can be examined:

? Your current financial position

? Risk planning (life cover, disability cover, dreaded disease cover and short-term insurance)

? Savings planning

? Investment planning

? Tax planning

? Estate planning (wills, trusts etc.)

Very few people have the technical expertise to address all of the above. Even if you do have some expertise and insight into some of these aspects, it remains advisable to seek an objective professional opinion on your personal planning. That’s why securing the services of a competent professional is always a good idea. As Joseph Hansen said: “A man who acts as his own lawyer (financial planner?) has a fool for a client.” Sometimes, a little distance goes a long way to provide clarity. Making wise decisions today can add many care-free years to your retirement later, to name but one significant potential spinoff. In practical terms, having regular review meetings with your financial planner would be like getting assistance to carefully put together the pieces of your personal financial puzzle, ultimately presenting both of you with a crisp and clear picture of the state of your financial wellbeing. This provides an objective basis on which a skilled planner can build and make appropriate recommendations.

ASSESSING THE WORTH OF THE ADVICE YOU’VE RECEIVED

Advice by itself is intangible, so demonstrating the value it adds can sometimes be a challenge. Research done by Vanguard (Putting a value on your value: Quantifying Vanguard Advisor’s Alpha, Vanguard research, March 2014) suggests that value-add can be quantified objectively by comparing the investment performance of clients’ portfolios where financial planning and wealth management techniques are applied. This includes aspects such as:

? Suitable asset allocation

? Portfolio rebalancing

? Behavioural coaching

? Tax-efficient vehicles

? Advice on the income withdrawal order from different investment vehicles.

Vanguard’s research compares advised and non-advised portfolio performance, indicating that getting advice leads to better investment returns. However, it does not stop here, as a single intervention by your planner during difficult market conditions to assist you to stay the course, could offset years of advisory fees. While the value of this wealth creation is very real, the difference in performance between staying invested according to a plan, as opposed to abandoning it, does not show up on any client statement. A comprehensive financial needs analysis would be an objective confirmation of the state of your finances, e.g. measuring to what extent you are on track for retirement. If you have accepted and implemented proposals to close an identified retirement gap, the progress can be monitored and measured when your planner reviews your initial plan. As such, your progress can be measured against your personal investment objectives – a powerful tool to retain commitment to a long-term planning strategy.

Financial planning is designed to be a process that could potentially move you from one point to a better place, in financial terms. If you work with a skilled planner, you will not only build a stronger balance sheet, with more assets and fewer liabilities, but also experience value-add beyond mere balance sheet affluence.

IN SUMMARY

The continued confirmation that you are on track to reach your financial goals and aspirations makes for a more content person and puts you firmly in charge, providing peace of mind in an uncertain world. Talking about value: for some people this might be priceless!

Disclaimer: The name(s) and the example(s) used in this article are for illustration purposes only. Each person’s circumstances are unique and should be assessed on their own with a financial planner before deciding on any action steps.