I would imagine that, after the reading the title, many of you would expect this article to be talking about things such as ‘recommending the right financial products’, ‘helping to minimise tax’, ‘getting a good return on my investments’ etc.
And whilst you would be right with the answers above, they’re not the only roles. They are what I call the ‘tinkering under the bonnet’ roles of a financial adviser.
A little story to explain…recently I had to take my wife’s car to the garage because a little red warning sign was showing on her dashboard. As neither of us are mechanics the little red warning sign was basically saying ‘hey…something’s not working right. At the moment I can get you to where you want to go BUT, if you don’t attend to me, then one day I’ll stop and the cost to repair me will be a lot higher than it is now. So give me the attention I need now ok?”
So we took the car in, the mechanic did whatever he did to fix it, and we got a bill. OK, its not a nice feeling to get a bill for £250 but I do know it’s a lot better than the future alternative….breaking down 40 miles from home, calling the AA, getting towed home in a truck and then being told the engine’s shot because you didn’t pay £250 2 months earlier!
So, yes, part of a financial adviser’s role is to be a type of mechanic for your finances. Someone who knows what each part of the engine does and how it all works together….but to help you do what? Let’s now ask what does a mechanic REALLY do? Do they just get your car through its MOT? Makes sure you’re using the right oil? Just checks your wheels are aligned?
Let me suggest what a mechanic really does.
A mechanic ensures you can:-
- get from where you are to where you want to be
- in the method/vehicle of your choice
- in the most comfortable and stress free way possible so that you can
- always reach your destination AND enjoy the journey
When you boil it down to the basics, THAT is what a mechanic REALLY does. We just see them as someone with greasy overalls on who tinkers under car bonnets.
So how does this equate to the original title of what a financial adviser REALLY does?
Well my answer is similair to the one above. If we agree that life is a journey with destinations that we want to reach along the way then a good financial adviser will help you to first identify and clarify what that journey looks like. They will help you to crystallise that journey in your mind, help you to imagine what a ‘life well lived’ feels like and help you to prioritise and establish what’s really important along the way.
A good financial adviser will help you to understand where money is important but also where it is not important.
A good financial adviser will help you to understand your relationship with money so that you own it, and it doesn’t own you.
All being well, this journey could be three score years and ten. It WILL involve others. Some will be in the same car, such as your family. Some will be in a different car but on the same road (your friends and people who you have something in common with such as work and hobbies etc).
But YOU ARE ON A JOURNEY, YOU ARE GOING SOMEWHERE. The difference is some of you have a road map of where you want to go and some of you don’t.
OK, so now we’re talking about road maps this is where the 2nd role of a financial adviser comes in. If the first role is to help you establish WHERE you want to go (and WHY you want to go there), the second role is then to work with you on HOW you’re going to get there?
The first role is life planning, the second role is financial planning.
Financial planning is akin to deciding where the journey is going? What are the landmarks along the way that you want to enjoy? How much petrol is required? Who’s coming? What vehicle(s) should you use and then, ultimately, what’s the best route to take?
In financial planning terms we are talking about goals such as when do you want to retire and how much will you need each month to achieve your desired lifestyle? Will the children need financial support for education or buying their first home? If so, how much will you need and when? In the journey analogy, the financial adviser’s role here is to be the sat nav.
A good financial adviser will bring a strategy to all of this and will then apply the 3rd role – financial advice.
Financial advice is the tinkering under the bonnet mentioned earlier. It’s ensuring you are using the right products with the right amounts invested in the right area’s. It’s ensuring you have the right level of protection to minimise catastrophes. It’s ensuring you are as tax efficient as possible. In other words its maximising all the tools available to help you achieve the ‘getting you to where you want to go as efficiently and as stress free as possible’.
Finally, once a plan has been agreed upon and implemented, a good financial adviser then will take on their 4th role – the role of the dashboard. The fact checker. The monitor. The reviewer and, importantly, the counsellor. They will work with you to ensure you stay on track and remind you what’s important and what isn’t. Believe me, the business of ‘living’ can easily make us forget the ‘life’ we want!
The one thing a financial adviser can guarantee about the future is that something will change and so its important that a regular review process is put in place to take into account any legislation changes, monitor investment performance, establish if you’re still on the right journey etc
Importantly, a good financial adviser will also help you to avoid making costly mistakes. We are all emotional beings and we can often react in ways that, once the emotion subsides, we may regret. A good financial adviser, whilst involved in your journey, will help you to make rational decisions when things change and help you to stay on track. We are not as emotionally involved (I mean this in a good, practical way) and so can make decisions based on facts that are often missed when emotions cloud them. Our brains are wired in a way that it doesn’t generally like waiting for an imagined future. It prefers immediate rewards to delayed gratification. That is why people spend more time planning their annual holiday than they do the rest of their life. Its also why people borrow money at high interest rates on depreciating items like cars or TVs.
A good financial adviser can have the Ulysees’ effect in these area’s. To explain, Ulysees is a Greek legend who captained a ship that used to sail past an island inhabited by Sirens – dangerous creatures whose songs would hypnotise sailors and lure their ships onto rocks. Legend has it that Ulysees would have his crew tie him to the ship’s mast to prevent him from steering the ship toward the island and wrecking his and his sailors lives. A good financial adviser that offers a comprehensive review service can be the person that reminds you of your destination and helps to ‘tie you to your mast’. Not only can they remind you of what’s really important (over what’s not) they can help you avoid the mistakes that come with knee jerk reactions – often triggered when markets move against you!
They can also help you avoid the Sirens – often seen on social media sites promising a risk free, guaranteed return of 8% per annum!
So, to recap, a financial adviser has several roles. Life coaching, financial coaching, the technical financial advice role and the monitoring/counselling role.
It’s not just about tinkering under an engine or selling financial products….its helping you to identify what you want your journey to look like, how awesome you can make it, who can benefit from journeying alongside you and how easily can you achieve it all. If you think this type of service will help then get one that does all of this for you. Ask them how they do it and what systems they have in place to do all of this. That should help you avoid the ones that just play the role of product salesperson and then leave you to make your own way.
My best wishes on your journey