By Michelle Burger, Brenthurst Wealth Client Communication Manager
Thanks to the multitude of platforms providing all manner of financial and investment news and content many investors feel confident that they can manage their own investments and thus save the fees charged by financial institutions and advisers.
Similar to fixing a leaking tap at home and not contact a plumber, the availability of investment and market news and performance tables for the multitude of investment products have encouraged some individuals to make their own financial decisions. Why pay for a plumber or financial advisor if the fees can be saved?
Alas, especially regarding personal finances, this may not be the best course of action.
To quote the well-known Afrikaans expression … “goedkoop koop, is duur koop (penny-wise but pound foolish). This applies to pretty much everything, including financial planning. You may think that you are saving a few rand in fees by managing your own financial planning and investments, but in the long run, your investment mistakes could costs you dearly.
Consider this – financial planning is not a once-off exercise and in a much more complicated investment and financial services universe investors not only need to be highly qualified and educated, they also need to stay up-to-date with the constantly changing markets and economic environments, Locally and globally. It is not a hobby, it’s a full time job!
Yet, in financial services financial advisers have come across many individuals who feel that they possess the necessary skills and expertise to manage their own financial plans, even though they have never studied financial management and have full time-careers and families. They feel, that with a little “googling” and reading a financial magazine here and there plus with a little guidance in the right direction (from some or other advisor or ‘expert’), they should do just fine without having to pay the advice fees.
While it’s not completely impossible for individuals to run their own financial plans and investment portfolios, it is simply not advisable.
The main reason is that the typical DIY-investor is usually more interested in the investment part of financial planning. They enjoy stock picking and making bets on certain sectors—enjoying the thrill of watching a share rise or fall—almost like gambling. The less interesting aspects—such as planning for retirement, estate planning, risk planning and tax planning are more often than not neglected and can have detrimental effects for that person and his or her family.
Qualified and accredited financial advisors look at an investor’s financial affairs from a holistic perspective and will never neglect one area; unless under specific instructions. Yes, advisory fees are payable for any investments made through such an advisor—but a lot of services such as estate planning and tax planning are value-added services that many advisors provide at either a reduced rate or at no cost at all.
Another aspect that investors often forget is that most skilled advisors are also trained in behavioural finance. That means, advisors act as their client’s coaches when it comes to their money, nudging them to make better decisions. When markets are shaky, for example, a nervous client needs to be talked out of withdrawing all their investments, which is usually the worst possible thing to do, but also the most normal thing for a client to want to do. Because advisors have the experience and have seen this pattern before, they will persuade the client to remain calm and wait for the storm to pass—saving the client a considerable amount of money in the end when the markets once again recover, as they usually do.
Peter F. Drucker, who was a brilliant management philosopher in the early 1900’s once said, “Do what you do best and outsource the rest.” If your “best” is not financial planning and investment, then why not leave it to the professionals?
For more visit the Brenthurst Wealth website at http://www.brenthurstwealth.co.za.