Free financial advice is dangerous as it leads to event-driven or product-based solutions. How financial advice is dispensed, and the structure and time frame in which it is done, is the key determinant of successful long-term financial planning.
If the advice is free, it means the adviser needs to sell you something else to earn money, destroying all objectivity and generally resulting in flawed investment strategies.
While the consumer thinks advice should be free, free advice has too many strings attached. Fee and commission-based advice processes start with an end in mind — finding a solution that can be sold to a client to both fill a current need and remunerate the broker. Such off-the-shelf product solutions do not meet individually tailored long term plans and result in ad hoc, event-driven financial planning — lacking both cohesion and continuity.
Previous generations made the mistake of approaching financial planning only as and when a need arose. In later life, as the shortfalls of this limited planning became evident, insufficient time and resources are available to close the gaps. This behavior is illustrated by the low number of South Africans with up-to-date wills — a tragic legacy left for their loved ones to deal with.
Instead, planning for life, or choosing a holistic rather than an event-driven approach to financial planning, involves finding a partner to walk the journey with you, helping you with the necessary planning in each life stage.
This requires:
- A change in the way consumers traditionally approach financial planning — embracing a fundamental shift based on a relationship and not a product.
- That financial planning, like your health, should not be driven by an immediate need with a quick-fix solution. Instead, a well structured disciplined plan that meets your various financial goals while allowing for planned adjustments as your life changes is required.
- Partnering with a certified financial planner and adviser organisation whose processes and philosophy aims to address your full planning needs over your entire lifetime. Even if there is a radical shift in your immediate needs, the process and philosophy should remain based on continuous support and ongoing adjustment.
- That advice is paid for and then possibly offset against fee/commission earnings on any solutions placed.
In short, planning for life involves focusing on four areas. In the diagram below, each block assumes priority at a different stage in your life planning, though no particular block will ever take exclusive precedence over the others.
Since the depth and extent of planning for life requires a professional to be involved throughout the process it is necessary that this kind of advice, and consistent attention to personal detail, is remunerated.
Free advice comes at a price — a price the consumer bears through his or her lifetime by not meeting or achieving the objectives along the way.
Linda Sherlock is head of advisory at Alexander Forbes Financial Services