I’m often asked whether people actually need to use a financial adviser. The simple answer, strictly speaking, is no. But it comes with an important caveat: they may well come to regret it if they don’t.
Before we get on to that, we should also point out that financial advice is not just about investing. What people need ideally is a financial planner — someone to work out what they want from life, how much money they’re going to need to do what they want to do, and when they’re going to need it.
They can also help with a host of things that again they probably could do on their own — tax and estate planning, for example — but which very few of us have the time, let alone the inclination, to do ourselves.
I’ve read two articles recently which encapsulate very neatly the value that a good adviser adds. One is a piece by Jason Butler in Money Marketing called The real reasons people take professional advice. There’s very little about investing and personal finance that Jason doesn’t know. He was, for many years, a successful financial adviser himself. Yet even Jason uses an adviser.
In his article, Jason refers to a new book by a Canadian neuropsychologist and executive coach, Dr Moira Somers, entitled Advice that Sticks. In her book, Dr Somers lists ten reasons why people seek financial advice instead of trying to manage their finances on their own. They do it to:
— reduce complexity
— take action
— save time
— offload unpleasantness
— make someone else happy
— increase confidence
— help make better trade-offs
— receive encouragement
— have someone to blame
— feel safer
These, says Dr Somers, are the real reasons why people seek advice. And what’s interesting about the list is the absence of items you’d expect to be on it. There’s no mention, for example, of picking the best investments or producing market-beating returns.
The other article that struck a chord with me is a piece called Easy in theory, difficult in practice, written by the New York City-based wealth manager Nick Maggiulli. Understandably, much of what Nick writes tends to have a US focus, but his blog, Of Dollars and Data, is superbly written and full of useful insights for investors everywhere.
In this particular article, Nick compares investing to diet and exercise and to meditation. All of those things, he says, fall into the category of “simple but difficult”. Meditation isn’t something I’ve really tried, but I know from bitter personal experience that the other two activities he mentions definitely qualify as difficult!
The rules of successful investing are remarkably simple — “keep your costs low, diversify and wait for a very long time” just about covers it. But, in practice, the waiting part is actually very difficult.
Investors are constantly surrounded by noise. There’s always someone saying you should be doing something — buying this, selling that — when in fact the best of course of action is almost invariably inaction.
Most of us, men especially, have an in-built bias towards action. If we’re honest, we’re all prone to fear and greed as well. So when, for example, we see our work colleague or brother-in-law making a killing on Bitcoin buy-to-let property, or when global stock markets are in freefall and everyone seems to be panicking, we naturally want to act — even though the rational response, almost invariably, is to do precisely nothing.
“So what’s the solution?” asks Nick. “Get a good financial adviser. It may seem silly to you, as it once seemed to me. You’re smart. You may even know the math better than most of them, so what could they offer you? They offer a behavioural crutch to save you from yourself. They provide a path forward when the future could not seem less clear. That’s what you’re paying for.”
Yes, investing is simple. But no one said it was going to be easy. And that’s why, if you haven’t already, you should probably find yourself an adviser. Even if you are one yourself.
Robin Powell is an award-winning journalist and RockWealth’s Head of Client Education. He blogs at The Evidence-Based Investor.