This year marks my 20th year as a Citadel wealth manager. It is a perfect time to reflect on the value of my and my colleagues’ decades of work. It is also a sincere attempt to understand whether the fees our clients pay for financial advice are, in fact, money well spent.
With the advent of robo-advisors, where advice is provided at low- or no cost over the internet, questions are being raised as to the future of qualified financial advisors. Is my job becoming obsolete?
I hope, for my own benefit as well as that of my clients, that the answer is no. An advisor is the middleman between the investor and the investment. Using our qualifications, experience and skill, we strive to help our clients achieve an optimal balance between risk appetite and return objectives.
All investors look for fantastic returns with minimal risk, but this is not always feasible. But by determining an appropriate asset-class mix between cash, bonds, hedge funds, onshore, offshore, equity, property and currency, the advisor helps construct a diversified portfolio of investments that best achieves each investor’s personal objectives and expectations. Citadel provides clear guidelines to advisors, based on in-depth asset class modelling.
The value of objectivity
The true value of a qualified financial advisor, however, is the objectivity that comes with being an intermediary. Although there are many people who can fathom the markets independently, I have yet to meet an individual who can truly be objective when it comes to their money and investments.
When political or global events turn market sentiment negative, the natural inclination is to be overly cautious. Likewise, after a period of calm and when the waters look smooth, investors typically take on more risk than they normally would. An experienced advisor has the tools and experience to assess their inherent risk profile and investment goals from a far more objective point of view.
The role of financial planners becomes even more critical once the planning and structuring phase is complete. I have personally experienced many instances where investors, my clients, have been tempted to make very emotional decisions about their finances: buying a coffee shop, helping their children purchase a property, or just setting them up with a large lump sum. I have even seen clients seriously consider making incredibly high-risk investments, bordering on pyramid schemes or completely overcapitalising on property.
A qualified and trusted advisor is able to spot potentially poor financial decisions and gently advise against this course of action. A robo-advisor could never be such a friend in need.
It is also important to note that investing, like life, is a process. Starting out with a diet, an exercise regime or a study programme is one thing. Keeping it on track and adjusting it to suit your new circumstances over the long term require a whole new set of skills. At regular intervals a financial plan needs to be reviewed and the portfolio rebalanced to continuously create the ideal asset mix to suit a client’s ever-changing financial needs. Planning and updating is often the easy bit, moving between asset classes, however, often requires an extensive administration process.
Although Citadel wealth managers offer their clients seamless portfolio changes, there is, in fact, a great deal of behind-the-scenes admin, like giving extensive notice on an existing investment or needing to open a new product for the new asset class. The extensive back-office function is rarely considered.
A deep understanding
When you consider why you are partnering with Citadel, I believe there are a few excellent reasons. Firstly, Citadel and its advisors are committed to good financial planning principles. Secondly, our advisors evaluate each investor individually and holistically.
By deeply understanding all aspects of their lives, both financial and personal, bespoke advice is given to that individual. A time-appropriate example of this – given South Africa’s fragile economy – is that if the majority of an individual’s investments are presently in South Africa, the advice may be to only provide offshore investments to diversify and balance a client’s local exposure. The third area where Citadel excels is backed up by research which shows that investment returns are up to 29% higher over a typical 30-year retirement term, when a client is provided with consistent financial advice. The average tenure of a Citadel advisor is 15 years, with many, myself included, having served even longer.
My last and perhaps most important point, where I believe robo-advisors will never be a substitute for a passionate financial advisor, is that there is something deeply gratifying in knowing that an experienced professional has listened to you, has understood your circumstances, goals, aspirations and dreams. Somebody on your side, to assist you in your journey to reaching those dreams.
Deon Bester is a Citadel advisory partner.
This article was originally posted in The Citadel Investor 2017, and was republished with permission.