How does Financial Planning add value?

Financial Planners can demonstrate every year how they have added value to their clients.

From ensuring you have a longer-term focus on your financial objectives to structuring your financial plan to achieve short-term goals, they act as a helping hand to guide you each year.

“You can be young without money, but you can’t be old without it.

Tennessee Williams

There are several ways in which financial planners may add value and continue to deliver consistent value for money over the longer-term.

Let’s talk about the initial value first.

1. Financial Health Check

Any client who hasn’t looked at their finances from the ground up will benefit from understanding several key elements:

  • What are your earnings, spending and saving?
  • Are you saving in the most efficient manner possible?
  • Do you have investments and how are they structured and performing?
  • Are you making the most of valuable tax reliefs to increase your wealth?
  • Have you a plan over the short/medium/longer-term and what is likelihood of you achieving it currently?

Financial Planners are experts who can make the above key financial insights real to you and help you structure your financial affairs to ensure you can live the life you want whilst your money works hard for you in the background!

Initial Financial Planning meetings to get to know clients and their circumstances are entirely free of cost, and a worthwhile investment to get the above questions answered.

2. Value specifically from the Financial Planning relationship

“What value do I get from working with an Adviser compared to doing this myself?” – Every client before they have benefitted from great financial planning.

This is a great question and to be honest clients who don’t ask it are doing themselves a disservice, you should understand what you are paying for!

An article by Vanguard* provided research on the value-added terming the value “Adviser Alpha.”

Adviser Alpha – the value added by the Financial Planner through relationship-orientated services such as providing behavioural coaching to our clients during the market cycles.

Vanguard’s research attempted to quantify the value-added by best practice in the Wealth Management sector, demonstrating the below benefits in addition to portfolio returns:

Vanguard’s Adviser Alpha StrategyValue-add to ‘average’ client experience in % return
Being cost-efficient for clients0.29% – 0.44%
Rebalancing0% – 0.48%
Behavioural Coaching1.50%
Tax allowance and asset locations0.32%
Withdrawal order for client spending0% – 1.53%
Total Potential Value AddedAbout 3.00%

Essentially, Vanguard’s research suggests the ‘average’ client could benefit around 3.00% additional value from their financial planning relationship.

Professional Financial Planning Ongoing Advice Charges (OAC) typically range from between 0.50% to 1.00% per annum. The above OAC pales in comparison to the return you will potentially derive from a great financial planning relationship.

3. Portfolio Structure (Asset Management)

Financial planning firms will advise clients on the best way to invest their money based on a wide variety of different factors, including but not limited to:

  1. Client goals and aspirations for their money
  2. Client risk levels / appetite for risk
  3. Client’s ability to deal with volatility or sustain financial losses
  4. Level of overall investable wealth
  5. Timeframe for the investment

After analysis of the above, Financial Planner’s using their expertise will recommend to the client the way the client should structure their money (Pension / ISA / Collective Investment) and also the underlying investment strategy.

The above recommendation will be the result of 100s of hours of think work, compliance input, rigorous testing of any assumptions and investment research completed by several incredibly experienced and trained individuals.

I emphasis the above, because I am not saying clients should not self-invest without the help of a Financial Planner / Investment Manager. Merely they will not benefit from the expertise and hours spent by professionals to determine investments specifically suited to them or their goals.

Great Financial Planners are supported by teams of experienced and knowledgeable colleagues whose main job is to research investment solutions that are suitable for clients, deliver good client outcomes and are explainable to clients to ensure they have peace of mind.

Conclusion

  1. Initial Meetings are free of cost and worth considering if you have questions about how to structure your financial plan. You have nothing to lose by attending the meeting.
  2. Value added from your financial planning relationship – Financial Planners understand the emotional side of investing and can provide you an unbiased view of what to do when things don’t go to plan.
  3. Portfolio Management – advice firms have teams of individuals to research, meeting with Fund Managers and provide you a solution specific to your circumstances. Client’s who can do all of the above likely don’t need a Financial Planner, but most clients can’t do the above.

“Price is what you pay. Value is what you get.”

Warren Buffett

Contact us

If you would value an initial chat regarding your financial planning, please contact Leonard Birnie at leonard.birnie@taitwalker.co.uk.


*[1] Westaway, P., Schlanger, T., Kinniry Jr, F., Jaconetti, C. and DiJoseph, M., 2014. Putting A Value On Your Value: Quantifying Vanguard Adviser’s Alpha In The UK. Vanguard Asset Management.