What to look for in a financial adviser
28 June 2017
Commentary by Neil Cowell, head of UK retail sales, Vanguard Europe.
Good financial planning can feel daunting. It doesn't need to. Here are some things to look for when you're considering working with a financial adviser.
Why is Vanguard so adamant in our belief in the value of financial advice? The answer is simple. When it comes to investing, most people, most of the time, will be significantly better off with the support of a financial adviser.
Let's think for a moment about the financial challenges facing many of us in the United Kingdom. Increasingly, individuals and families are expected to take direct responsibility for life's largest expenses, a home, higher education and support in later life.
These are real challenges but we should not feel overwhelmed.
At Vanguard, we believe in the power of investment as a means to meet life's financial challenges. Like any powerful resource, the more it is harnessed and directed, the more benefits it can bring. And that is the role of a financial adviser. Ideally, an adviser will help not just with your personal plans but with those of your family, including passing wealth to the next generations, business issues, estate planning and the like.
Vanguard has done a lot of research on how advisers bring value to their clients. I would like to share some of those insights, which might help you to make the most of your adviser.
Set the strategy
The first step in establishing a good investment strategy is to clarify what it is you need to achieve. Your adviser can help you to analyse your present financial situation as well as your future prospects. He or she can then help you to understand some realistic investment objectives, including the amount you will need to put in and the risks you are willing to bear.
By balancing out your current and prospective resources, your estimated required return and your willingness to put your capital at risk, an adviser can construct a portfolio of investments that is right for you. This process, commonly known as asset allocation, is core to the adviser's role. Whether it is a bespoke portfolio or a simple, all-in-one solution, it is ultimately the mix of investments that most determines whether you meet your objectives.
Investment charges can eat significantly into investor returns over the longer term. But research shows that few investors know how much they are paying and a surprising number believe they are not paying anything at all.
There are many reasons for this. On an annual basis, charges look small. It is only when they are compounded out over many years that the damage will be done. On top of that, they can be complex, covering a number of separate services, such as fund management, account management, audit, custody, trusteeship and so on. Different investment firms will charge for different services in different ways. Then there are add-ons that may or may not be charged, depending on various terms and conditions, such as initial charges, dilution levies and exit charges.
Understanding charges and ensuring they are minimised to the benefit of the investor is another critical value that an adviser offers.
Keeping a balance
The long-term nature of investment presents the problem of how to manage a portfolio through a number of changing economic and business cycles. We need only think of what has gone on over the past 20 years to appreciate how dramatically conditions can shift: The tech boom and bust, the emerging market rally, the housing boom, the financial crisis and the subsequent recovery interspersed with episodic crisis in the euro area.
Some of these events came on quickly. Others evolved over years. A good financial adviser is there to ensure that through all of these changing times, whether fair or foul, your portfolio is kept in balance and aligned with your circumstances and your goals. Personal circumstances can also change, and a good adviser, who has taken the time to get to know your goals for you and your family, will be able to advise on the best course to ensure your investments can adapt as needed.
When times are calm, this may seem a fairly obvious function. But it can matter hugely when the market is falling, when there is catastrophe in the headlines, or indeed, when markets are soaring and profits look all too easy. At such times, whether from fear or greed, we are all tempted to give in to emotion, or act on our intuition, and it's then that sensible counsel is most valuable. If your goals haven't changed, chances are your goals shouldn't change either.
Finally, there is tax. The Chancellor of the Exchequer is typically very interested in pots of money, in their accumulation, transfer and discharge. Taxes differ as they relate to different types of assets, to income and capital, to inheritance or gifts or trusts, and whether you invest directly or through an Individual Savings Account or through one of the other many vehicles for saving for a pension.
An adviser can take your complete circumstances into account and help you to structure your investments in a manner that can minimise your tax liabilities. This process should evolve through varying life phases, from when you are accumulating assets to when you need to access them (either as capital sums or as income) through transferring them to family members.
Longer, healthier lives are wonderful blessings, as are educational opportunities and the chance of a nice home. But nothing comes free. If we are to make the most of our futures in a complex, challenging world, financial advice can make an enormous difference.
This article is designed for use by, and is directed only at persons resident in the UK. Vanguard Asset Management, Limited only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the products described above, please contact a financial adviser.
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
The opinions expressed in this article are those of the individual author and may not be representative of Vanguard Asset Management, Ltd.
Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.