What is Financial Planning and Why Should I Care?

I can clearly recall a recent and profound moment when my role as a financial adviser impacted my clients and made a big difference on their financial outcomes. March 2020! Take yourselves back there…the debate was still on about whether Covid was just a bad flu or whether people should indeed be stockpiling toilet paper and tinned foods. South Africa was plunged into its first and toughest lockdown on Thursday 26 March 2020, and as fate would have it, my husband and I welcomed the birth of our third son the following Tuesday. The hospital and roads were empty, I never met another mom or baby, in fact I never even left my hospital room.

Suddenly all the panic, unknowns and potential consequences of a pandemic hit stock markets, and they fell dramatically. A few of our clients were very worried, headlines were urging investors to sell out and sit in cash, fear was high. At Harbour Wealth, we had just concluded our first Investment Committee Meeting of the year in February 2020. We had calmly and rationally debated our various investment positions with many fund managers, economists and of course our experienced and award-winning Wealth Management Team. We had implemented a rebalance across our investment strategies, thereby mitigating being overexposed to an asset class that perhaps had run a bit hard recently, and rather allocating more to the unloved sectors where prices were enticing and holding an investment exposure made sense.

Better outcomes for our clients

Armed with the knowledge of what we had just discussed and taking comfort in our rigorous process, when it came to dealing with the short term and volatile Covid impact on financial markets, we really helped our clients calmly avoid making big mistakes such as selling out and waiting in cash. In fact, I heard yesterday of a new potential client that had sold out in March 2020 when markets fell, and unfortunately hadn’t been advised or assisted to re-enter the market. Think about the opportunity cost of missing out on the subsequent strong rally in the markets … it’s actually devastating. We get things wrong from time to time, but our ultimate goal is always ‘better outcomes for our clients’ and with that as a guiding principle, we can usually get back on track quickly.

At Harbour Wealth, we always try and invest with a 5-year time horizon

At Harbour Wealth, we always try and invest with a 5-year time horizon; hence we didn’t see the need to make any significant changes in the wake of extreme volatility at the onset of the pandemic. We didn’t let our clients lock in any losses. We didn’t let our clients miss the recovery trade. We didn’t let our clients eat into their retirement capital, nor reduce their income. We didn’t let our clients damage their financial outcomes.

We gave our clients financial peace of mind and fought to protect it when they were vulnerable and scared, and needed us.

For me that is the essence of financial planning, and why everyone can benefit from it. We are there to guide, simplify, recommend and advise. We are also at times emotional sounding boards that you can rely on. We understand and respect how hard you have worked to accumulate your wealth, which is why we plan and build together to achieve YOUR goals. We have the experience and the ability to continually negotiate better pricing for you, whilst actively managing your investments. This all allows your money to compound at a faster rate, providing you with a higher sustainable income when you eventually need it.

Quantifying the value added by Financial Advisers

In fact, Vanguard (one of the world’s largest and most respected investment companies) and Morningstar (global research company) attempted to quantify the value added by Financial Advisers. They were trying to ascertain whether an adviser who charges a reasonable advice fee provides enough value to justify that fee. Morningstar focused on the value of good decision-making in terms of its impact on retirement income. They ran an extensive study, monitoring a variety of metrics, concluding with the finding that clients’ ‘improved outcome scenario’ – care of their financial adviser – returned 22.6% more relative to the ‘naïve investor who chose to go it alone’. Vanguard opted to quantify the value add of best practices in wealth management, as opposed to just beating the market. Their concluding remarks were that the value added by good advice greatly exceeded the fees. They calculated that the total potential value added by financial advisers is about 3% in net returns per year! Said in another way, if you are paying your adviser an ongoing advice fee of 0.5% p.a., the potential return you could be making because of them is six times that amount!

Financial planning, investing, providing for your retirement, becoming a global citizen… doesn’t have to be complex and intimidating.