Financial Advice

Financial Advice - the key steps

 

What is financial advice and what can a financial adviser do for you?

 

You won’t be on your own if you have ever wondered what a financial adviser does and how they can help you with your money. So, how does this professional help you decide of the best course of action for you to achieve your short, medium and long-term goals? The purpose of this article is to help you understand, step-by-step, exactly what a financial adviser does and how they may be able to help you. Let me first start by saying that everyone can probably benefit from the advice of a financial adviser, even if it is just a sounding board for a second opinion. Many people manage their finances without the help of an adviser, However, they can certainly help you avoid making costly mistakes.

This article will help you understand how the advisory process works and how the adviser helps craft a plan for you to achieve your objectives. In summary, this professional adviser helps devise a detailed plan and system to help you put structure into your daily, weekly, monthly and yearly plans, as well as how to grow and protect your wealth.

Financial advice is about having a plan

At the very heart of the process your financial adviser is your planning partner for both your goals and objectives as well as your money. Let me give you a simple example. Let’s say, it’s been your life ambition to buy a holiday home in Tuscany or you need to pay for your daughter to go to a top university in ten years’ time. To accomplish these goals, you may need someone to help make sure these plans become reality or it may not work out as you had hoped. This is where a financial adviser can help plans into place to make sure that this happens.

You and your advisor will discuss a wide range of topics, financially related but not exclusively, including how much money you will need to save for the future; when you need the money in the future; what you plan to do to plan for your future; what you should consider, to ensure that your plans come to fruition, should life not quite work out as you had planned.  This is why choosing the right financial advisor is crucial, if you are to succeed in your future plans.

Your financial adviser will also help improve your financial knowledge and help improve your understanding of not only your financial position, but also the solutions that can help you achieve your goals. With a better understanding of your financial position and the alternative options, you will certainly dramatically improve your chances of achieving your goals. A financial adviser can be instrumental in helping you succeed. Part of the adviser’s task is to help you understand what needs to be done to help you achieve your future goals. The education process may include detailed help with different financial consideration in different areas. At the beginning of the journey, this may well include how much you need to be budgeting and saving. On a more complex level, your adviser will help you in understanding more complex subjects, such as different investment options, types of insurance you may need to consider and taxation consequences of any decisions you make.

Step one of the process

Step one in the financial advice process is to begin to understand your financial health, if you like, where you are positioned right now. It is pretty much impossible to plan properly for the future without fulling knowing where you stand today. Typically, your financial adviser will go through an extensive series of questions, so that a full picture your current situation can be stablished. These questions help the financial adviser to understand your situation and make certain you do not overlook any important information. The questions an adviser asks you can help uncover areas that you may not have previously considered and areas of risk that need to be understood and protected against.

Financial advice to help plan for the future

The Initial Questions that financial advisers ask

Your financial adviser will help you to clarify your assets and in many cases, help you create your own personal asset (what you own) and liability (what you owe) statement. Your financial adviser will also work with you to establish your personal income and expenses. Many people do not know this information accurately enough to plan for their future goals and objectives.

Your financial adviser will also help you establish your potential future pension and income sources and projected retirement income needs in addition to any long-term financial obligations. All your current and expected investments, pensions, gifts and sources of income should be understood inn detail and projected into the future to an agreed date when the money and/or income will be needed.

The investing component of the questions covers more subjective topics such as how much risk you can tolerate and also your capacity for loss. Financial Advisers often us a ‘Risk Profiling Questionnaire’ to help them gain an understanding of you as an investor, although this is not essential in the process. An understanding of your attitude to risk will help your adviser when determining what investment solution will be appropriate for you and to decide upon your investment asset allocation. Capacity for loss is different to ‘attitude to risk’ in that an investor may be prepared to take on a high level of risk, however their financial position may be such that they cannot financially afford to suffer losses within their portfolio. For example, this may be because the time scale for the need to sue the money may be too short to be exposed to investments that may fall in value.

Financial advice for a better future

Another aspect of investing that your financial adviser will consider is whether you wish to invest your money on a ‘Socially Responsible’ basis, such as ethical investments and well as taking into account religious considerations which may affect how you invest.

Included in the initial assessment of your situation, is an understanding of other financial management topics such as protection insurance issues and your tax position. This can be very important when putting together an appropriate plan for the future. Your financial adviser needs to be understand of your current plans on your death. This will mean that they need to understand the terms of your ‘Will’ and whether it accurately reflects your current wishes. Your financial adviser will also need to know who you other professional advisers are as they may need to liaise with them on related planning issues. Typically, these would be your accountant and solicitor if you current have one. Once you and your financial adviser understand your current financial position and future projections, you are ready to work together putting your financial plan together to meet your life and financial goals.

The primary objective for your financial adviser formalize all of this initial information to create a comprehensive plan for the future

The Financial Plan

The actual financial plan comes after your financial adviser has completed asking you questions to build a full picture of your current situation, helping you learn and understand the process. You should consider the financial plan as your roadmap for your financial future goals and aspirations.

Your financial plan will usually begin with a summary of the key facts regarding your current situation and what you wish to achieve in the future. Your plan will also have a summary of your current financial position including net worth, assets, liabilities, and liquid capital or savings.

Your financial plan will also summarize your future goals that you and financial adviser have agreed and discussed together.

Financial advice is about creating your own financial plan

The recommendation section of your financial plan will cover in detail several different, but related topics including you’re your ‘attitude to risk’, your ‘capacity for loss’, the proposed investments, protection that may need to be put into place. In addition to the proposed solutions, your financial plan will also include the risks and downside to the proposals within the plan.

Using financial cashflow modelling software to calculate your potential future net worth and future income in retirement, your plan will help you establish how likely you are to achieve your future goals and what the effect any notifications to the plan are likely to have. Your financial plan will show the effect of the withdrawal rates during retirement and the impact it will have on your income producing assets. The two main objectives of the cashflow model is to calculate the estimated value of your assets at retirement and whether the agreed income withdrawal rate in retirement will lead to you running out money during your lifetime. Your financial plan will also take into consideration the effects of inflation over time, as over the long term the value of money will erode to a greater or lesser extent, depending upon the level of inflation assumed. Your financial plan will also include the impact of you receiving additional lump sums of money in the future, which may come from an Inheritance or the sale of property.

A key topic that must be covered in the financial plan is how much money you will need to meet your desired goals. Your financial adviser will almost certainly discuss with you the possibility of you outliving your money and how this can be mitigated against.

Once you have reviewed your financial plan with your adviser, adjustments can be made before the plans are implemented.

Financial planning steps to success

The initial ‘discovery meeting’ questions and the creation of your financial plan are critical to the success of the next stage in the process.

Your financial adviser will set an asset allocation that fits both your ‘attitude to risk’ and your ‘capacity for loss’. The asset allocation helps to determine what percentage of your total investment portfolio will be distributed across various asset classes. A more risk-averse individual will usually have a greater concentration of fixed assets, and a risk taker will take on more stocks & shares and other investments. The assets allocation will usually be adjusted for your age and how long the money is likely to be invested before it is either needed for another use or to provide income.

The investment selection process varies among different financial advisory firms. Independent financial advisers have the opportunity to recommend investment solutions from the entire market place of regulated investments. Few financial advice firms give advice on alternative assets, particularly non-regulated invests, due to their inability to obtain Professional Indemnity Insurance and these types of assets often being very difficult to dispose of. For investors who wish to hold these types of asset, it is usual practice to self-advise.

Financial advice helps you build your investments whilst protecting again risks

For a financial plan to be successful it is important for you to understand recommendations and how they work. One of the golden rules of financial planning and investing is not to invest in something or arrange a financial product that you do not understand.

Your financial plan will also cover the cost of the initial advice and the cost of ongoing servicing. The setting up of a financial plan is not a one-off process and should be refined over time. As such there is a cost that needs to be considered for the ongoing advice. The cost of advice will be explained in both percentage terms and the monetary amount within the financial plan.

Ongoing reviews of your financial plan

Your financial adviser will review your plan on regular structured process, providing you with regular information updating you on the progress of your investment portfolio. Depending upon your circumstances and the design of your plan, your financial adviser will set up regular meetings to review your goals and progress. Meeting remotely via video chat can help make those contacts happen more often.

It is also very important to consult with your financial adviser when you experience a significant change in your life that might impact your financial picture. When your circumstances change your financial adviser will be in a position to advise you how these changes are likely to impact on your plan and if necessary take mitigating steps.

Having a financial adviser on your team

Not all financial advisers have the same level of training and qualifications or will offer you the same services. A such, when deciding upon a financial adviser, do your own due diligence first and make certain that the adviser can meet your financial planning needs.

Check out his or her qualifications before arranging to meet the adviser. In additional you should always check the Financial Conduct Authority Register, to be confident that they are authorised to provide financial advice. You can do this by visiting the following FCA website. https://register.fca.org.uk/

And finally, always be sure that you understand and agree with the fee structure before engaging a financial adviser and exactly what they will be doing for you and how often.