Much like visiting the dentist, many people avoid seeking financial advice until they are feeling some sort of pain. Whether it’s a retrenchment, bad investment decision or personal tragedy, it’s often in the wake of a significant life event that people tend to reach out for advice. With sound, independent and affordable advice widely available, what stops people from proactive financial planning?
I can do it on my own
The financial services industry has grown in size and scale over the past two decades making it a complex field to navigate alone. The complexity and scale have given rise to a number of undergraduate and post-graduate qualifications tailormade for those entering the profession. Most universities now offer commerce degrees specialising in financial planning, post-graduate degrees and diplomas in financial planning, as well as a range of certificates in wealth management and investing, to name but a few. However, over and above navigating literally thousands of products and investments vehicles out there, a financial advisor plays a critical role in helping clients keep composure when investment markets are in turmoil and acting as a touchstone in the face of potentially emotive financial decisions. While you can try and go-it-alone, a qualified financial adviser will make life a lot easier.
I’m too busy
With many people attesting to feeling over-worked and time-poor, being ‘too busy’ is often used as an excuse for not seeking financial advice. The well-known adage ‘if you don’t have time to take care of your health today you had better make time for your illness tomorrow’ is just as relevant to your financial health. Ongoing neglect of your financial well-being can have far-reaching effects on your financial future which you may well grow to regret in time. Being too busy to sort out your finances is counterintuitive and serves only to kick the proverbial can further down the street. If you need to sort out your financial affairs at some stage, it may as well be now.
I don’t have enough money
There is a common misperception that professional financial advice can only be accessed by high net worth individuals. Financial advisers are often mistaken as guardians of our wealth as opposed to professionals who come alongside us at the start of our financial journeys to guide us towards our goals. Sadly, many people wait until retirement before seeking financial advice – only to discover that they are under-funded for retirement and overburdened by tax. Seeking financial planning advice at the outset of your career will allow you to maximise tax-efficiency early on, contain investments fees, invest in the appropriate vehicles and target the correct returns for your horizon and risk tolerance.
It’s too early to start saving for retirement
The two most important factors when it comes to investing for the long-term are time and compounding interest. Regardless of your retirement goals or whether you intend retiring at all, starting your investment journey early on will provide you with one wonderful gift: choice. Interestingly, only 22% of employed South Africans start investing at the outset of their careers, whereas over 50% of those who didn’t say they would do it differently if they had the chance to start over. Investing over a longer period of time can provide you with the option to retire early, change careers, travel abroad while you are still relatively young, or follow your philanthropic pursuits. Without enough invested capital your choices will be limited and your financial future insecure.
I have group benefits
Most employers provide group benefits as a way of discharging a responsibility towards their employees. As such, group benefits form part of your personal financial planning but do not take the place of it. The quantum of group life or disability cover provided is unrelated to one’s specific needs and is generally provided in multiples of an employee’s annual income. For instance, you may qualify for life cover equal to three-times your annual income and a disability income equivalent to 75% of your income – both of which are unrelated to your personal circumstances, debt levels, the needs of your spouse or those of your children. Similarly, unless specifically indicated, most employees will end up contributing to the default retirement fund option which is generally a more conservative investment strategy. This could mean that a young professional is invested in the same strategy as her 60-year old colleague. The assumption that your group benefits provide for all your needs is a dangerous one to make.
I can’t afford a financial planner
There are a number of different fee models used by financial planning practices and it makes sense to find one that suits your needs. Some fee-based practices charge a flat monthly fee, some charge a percentage of assets under management (AUM), while others charge a combination of both. Commission-based structures are becoming increasingly unpopular because of the inherent conflict between the need to generate sales and the ‘best interests’ of the client. On the other hand, an advisor who charges a percentage of AUM is incentivised to ensure that you remain appropriately invested to achieve your goals. Many fee-based practices outsource fund selection to discretionary fund managers (DFMs) which allows them to spend more time servicing their clients. Because of the economies of scale created by using DFMs, investors can benefit from reduced investment fees and full transparency as to how they are being charged. In addition, many fee-based planners charge fees according to a sliding scale which reduces as your assets under management increase. Whichever remuneration model you choose, remember to negotiate all fees upfront and ensure that you there is full transparency.
I am going to inherit
Believing that a future inheritance is going to take care of your retirement planning is particularly risky. Market movements, family dynamics, bad investment decisions, longevity and tax are just a few factors that can affect a family’s wealth over time. In the absence of any guarantees regarding the size, timing and nature of your inheritance, it would be wise to put your own retirement plan in place.
I don’t plan to retire
While you may not plan to ever retire, circumstances may leave you with no option. Retrenchment, disability or ill-health may force you into a retirement that you are emotionally and financially unprepared for. With more and more industries being disrupted, it is not safe to assume that you will be able to continue working in your current field of expertise indefinitely. While you may have no desire to ever stop working, it makes sense to prepare financially for retirement in the event that find yourself unable to work in the future.