Why financial advice is a marathon, not a sprint
Is financial advice top of your Christmas list? Probably not! It’s not really the same as a pair of trainers or new watch. Financial advice is of course a service not a product; but still, it’s also very different from other services such as accountants and solicitors. With those you might use them as a one-off – to sort a tax problem or buy a house. But financial advice tends to be long-term and ongoing.
Why is this?
We sometimes get asked this question. We offer the opportunity to become a client of ours an ongoing basis. This includes a list of benefits you can read about in our client agreement. But some people still think of advice as a one-off, in the same way as asking a solicitor to write a Will. Until we explain the benefits, that is.
We often use the analogy of car maintenance to explain why one-off advice is false economy: If you only ever take your car to the garage when the engine light comes on, you’ll fix the problem. But over time, it’s likely your costs will rise. Pay for an annual service instead and you’re more likely to catch any faults before they become too expensive to fix. What seems like a bigger outlay at first helps keep your total running costs down.
Most importantly, you’re more likely to keep the car on the road for longer.
It’s the same with a financial plan
An annual review helps you keep tabs on your finances, make adjustments when they’re needed, and ensure your actions are still aligned with your overall financial objectives.
This is more than just a cute theory. A previous report by the International Longevity Centre (ILC) concluded that financial advice was worth nearly £50,000 to a person’s wealth, in terms of their pensions and assets.
The report also found evidence that fostering an ongoing relationship with an adviser led to better outcomes. In fact, it estimated that taking advice on an ongoing basis could yield a 50% higher pension pot.[i]
So many moveable feasts
We see many examples where a long-term relationship has paid dividends.
The big question most people have when they first engage a financial planner is “Will I have enough?” But it’s never just a one-off calculation.
As well as considering where to invest or how much risk you should take on, the answer also depends on other factors. Tax allowances, for example, capital gains from disposing of assets, inheritance tax.
These are all moveable feasts. Markets go up and down, tax policy changes from year to year, and your personal circumstances (and sometimes your goals) can change too. The strategy you start out with at the outset, might not fit your needs later on.
As an adviser, we can talk you through your options at each point to make sure what you’ve got in your plan matches reality and is working well for you.
Helping your retirement pot last
When you’re winding down or fully retired, the question becomes “Am I going to run out of money?”
Many people at retirement go a bit mad and start to splash the cash. Coupled with the excitement of retiring, is the fact that many people underestimate just how long they’ll live for.
Research from Canada Life earlier this year estimated that people aged 50 and over think they’re going to live until around 80 years old. It’s actually higher – 87 for the average UK woman and 84 for a man. With one in four women living until their mid-90s, that’s a sizeable difference to spread out your savings.[ii]
So a key benefit of ongoing advice at this stage is about managing the retirement pot you’ve accumulated. This is where we’ll get a little firm with you! If you’re planning on going on 3 holidays a year and buying a new car, we might recommend scaling it down to 2 holidays and a smaller model.
The opposite may apply too: if you’re not spending enough, we’ll tell you to treat yourself! After all, there’s no benefit to being the richest person on the graveyard!
The other benefit of ongoing advice at this stage is helping your plan withstand any unexpected events.
During Covid, as the market initially collapsed, we shut our doors to new business. We did this so we could focus on our clients taking income. Our focus during this time was making sure we could find alternative solutions and work arounds for them. If you’re in the retirement phase, you want that kind of reassurance. And it’s a benefit that isn’t available if you don’t have an adviser who knows your situation inside out, by your side.
Why the one-off option might cost more in the long run
In the next few articles, we’ll focus in more detail on the different ways that ongoing advice can help people in specific scenarios.
Sometimes the benefit of an adviser is that we’re here to tell you something’s achievable. And sometimes, we’re here to tell you it’s not. But just like skipping your car’s annual service, the risks are that trying to cut corners with your financial plan will mean it costs you more in the end.
Ongoing advice gives you a financial plan that adapts to change. After all, financial advice is a marathon, not a sprint.
[i] What it's worth. Revisiting the value of financial advice, ILC and Royal London, 2019. The report looked at data from two separate Wealth and Assets Surveys, from 2006/08 and 2014/16. The pension wealth for those who reported they had been at advised at both waves was 50% higher than the overall advised group.