The value of advice

In today’s ever-changing environment, it is invaluable to stay informed and plan for the future. 

Making financial decisions can sometime be a daunting experience, especially when you are looking at planning some big life events, such as a house move, starting a family, planning for retirement, and eventually, passing your wealth down to loved ones.    

When you engage with a financial adviser, seeing the value can sometimes be purely focused on investment returns alone.  People do not often talk about the other areas of value that engaging with a financial adviser can bring. 

A financial adviser’s overall goal is to help clients make better financial decisions.  A financial adviser can do this by helping clients overcome any anxiety or stress that can often accompany decisions surrounding their finances.   

How do financial advisers provide value?

Making sure your investments are structured correctly can help with mitigating taxation on gains, withdrawals and passing down your wealth to your beneficiaries.     

When looking at your investments, there are three areas that will be reviewed: 

  1. Name/Ownership: who owns the investment, and should this be changed? Typically, investments are held in one name, jointly or via a trust.  In some circumstances, there may be a more tax efficient way for you to hold your investments and a simple change of ownership from sole to joint names can ensure two tax allowances are being used instead of one. 
  2. Beneficiaries - Who will benefit? Making sure the right people benefit at the right time. Investments are very rarely placed in trust. However, understanding the benefits of a trust can avoid the emotional stress of having to wait for probate in the event of one’s death. There are also significant inheritance tax advantages for some larger estates.  
  3. Taxation – Are your investments held in the right tax wrapper? This will ensure that you do not lose money through paying unnecessary tax, in a legal and ethical way. This can be through reclaiming tax (through investing in a pension), sheltering tax on future growth (through ISAs) or deferring tax to a later date (through investment bonds).

These are the foundations for the value that a financial adviser can provide.

Once the structure is right, we then look at ways to enhance your solution. These are the extra benefits that you can receive by working with a financial adviser, compared to setting up an investment yourself.

  • Leverage: by working with a financial adviser, you may be able to gain access to lower provider charges
  • Rebalancing: this ensures that your overall investment strategy is kept on track and stays within your risk appetite. A well-structured portfolio will be diversified across geographical regions and through various asset classes (such as cash, fixed interest-bearing investments and equities), and these will be rebalanced on a regular basis.
  • Suitability: the ongoing suitability of your investments is extremely important, to ensure that your objectives are aligned with your solutions. A change in your circumstances, such as a new job, can impact your overall attitude to risk and some changes to your financial plan, and your investments, may be needed.

You should expect your financial adviser to work with you on a continuous basis to ensure:

  • You do not take either too much or too little risk with your investments and getting that balance right is fundamental
  • You are utilising your tax allowances each year to ensure your investments are held as tax-efficiently as possible
  • You are on track to meet your goals and objectives
  • You are aware if you have a shortfall to meet your objectives, and how this can be addressed

Lastly, working with a financial adviser can help you feel reassured at times where our advice is to do nothing. This has become more relevant during 2020, when we have seen the markets become extremely volatile whilst the globe has been dealing with a pandemic. It is perfectly natural to want to sell your investment when markets start to decline, however, there is no way of knowing if your investment will continue to fall or whether it will recover. When investments recover, this can happen very rapidly. If your goals have not changed, neither should your plan. When working with a financial adviser, the overall financial plan is designed to be successful over the long-term, this includes the bad periods of time. Reacting to a fall in the value of your investment can be disastrous because these falls are impossible to predict. By selling your investment, you are realising the loss. Whereas, by remaining invested, you have the ability to recover. Various studies have shown that reacting to a fall in your investment is one of the biggest destroyers of returns for investors. Unfortunately, our psychology means that this is a natural decision to make, so having a financial adviser can help control these natural instincts.

Your financial adviser should become your trusted adviser, who will become integral to your financial decisions.

The value of investments, and the income they produce, can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority do not regulate trusts.

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