What makes a good financial adviser? (Hint: it’s not just someone to ‘look after your money’).
For us, a hugely important part of advice is coaching. We coach our clients to resist the urge that can affect us all, of taking too near-sighted a view of our finances.
A fundamental part of human nature
It’s often very hard to look past what’s right in front of us – it’s instinctive.
This is particularly true of investing. Researchers speaking to younger investors found that, while nearly half would set a long-term goal when it came to their love life (i.e. searching for dates that were potential life partners), less than a third carried over this idea when it came to their finances.
In fact, only 2% had a timeframe of more than five years, 14% had no timeframe at all.
Short-term thinking does funny things to our objectivity. Give someone the choice between £200 now or £210 in a month’s time and many would rather take the money now. Interestingly, stretch out that timescale to a year’s time (£200 in 12 months or £210 for waiting one month more), it’s more likely they’ll go for the larger amount.
Too short-sighted a view can allow emotions to cloud our thinking, which is why we often feel our losses more acutely when markets go down, than we tend to enjoy the gains.
Making that leap to look longer term often needs a helping hand. Our role as financial advisers is to help give you some of that long-term objectivity. And that’s where our focus on coaching really comes into play.
Strategy or objectives – what’s the difference?
First of all, let’s talk about two key terms, strategy and objectives. They are intricately linked and the differences between the two can often seem very blurry indeed.
New clients often tell us they’re looking for ‘someone to look after my money’.
“I just want to have the money there so I can spend my time doing something I enjoy”.
That’s an objective.
Building your pension, for example, is not an objective. It’s just the fuel in the tank. Instead, the objective is setting out what you eventually want to do with the money you’ve saved once you start to draw down from your pension.
If it seems we’re splitting hairs, the distinction between these two terms is hugely important.
Why? An objective with no strategy means you’re unlikely to achieve anything, it’s just a vague ambition. Make a strategy without a well-defined objective on the other hand, and you’re very likely to find yourself down a rabbit hole. You could easily end up working well past the date when you could have retired, for example.
Setting clear objectives also helps us in our aim to achieve good consumer outcomes under new Consumer Duty rules – read more about what we have had to say about this here.
Asking the right questions
So, what’s the key to good financial coaching? Asking questions.
Coaching is a year-round affair. But it’s most visible to our clients when we hold our annual reviews. This is where we dig deeper and look for the small details that can sometimes have a big impact. And we do this by asking questions:
Have your objectives changed over the last year? A fresh, or revised objective might mean a tweak to the strategy. So what compromises are you happy about making to help you get what you want?
Are you planning big home improvements? How does this affect plans you might have to retire early? And, if so, what’s the priority, finishing work sooner, or making sure your home is ready enjoy a leisurely retirement?
The closer people get to retirement, the harder they tend to think about an actual retirement date. How would retiring at 55 change your behaviour right now?
Or maybe you’re already retired. Remember, retirement is only the beginning, financial advice is just as important once you’ve finished work. The strategy has moved from accumulation to decumulation but what about your objectives? There are only so many ‘holidays of a lifetime’, but do you want to try something new, learn new skills, go back to university, volunteer for a charity?
It’s a lot of questions, but these help us lay out the options for you to coach you through the process and lead you to more informed and confident decisions. It’s true that clients can sometimes wonder whether a review is required, especially if they feel like nothing has changed, but it helps make sure your objectives are on track and maintain that big picture focus.
Staying in control
Back to what we said earlier about emotions clouding our thinking. Coaching helps take that emotional sting out of investing by showing you how to you control what you can about your financial journey.
It’s hard to ignore that the last four or five years have seen some of the most challenging investment periods in living memory. It won’t be surprising if short-term investment performance has been impacted. But we know we can’t control markets.
Therefore, we must think about what’s actually more important: whether your pot is up or down right now, or whether you’re on track to live the life you want to lead.
A more short-term focus, and you might be tempted to tear up a 30-year-strategy and switch out for the temporary benefits of higher cash savings rates, even though this is more damaging in the long term.
What we can control is our behaviours. As your advisers we will qualify the quality, consistency, and suitability of your investments, optimise your portfolios for tax, and help you think about the decisions that are really important, your attitude to risk and, most importantly, the overall objectives.
That leads us to the best question of all. When we ask clients “What will make you happy?”.
Often this is accompanied by a smile as they sit back and think about what they want to do more – or less – of. Safe in the knowledge that there are objectives can help lead them there.
Speak to us about how we can help.