Financial advisors: reducing the “eeny meeny miney mo” factor
Pension funds, retirement annuities, preservation funds, living annuities. The current uncertainty in the market and an explosion of choice arising out of the government’s welcome attempts to increase investment flexibility have left consumers in need of balanced, objective advice when deciding what to do with their hard-earned money. Gavin Came, board member and chair of the Financial Planning committee of the Financial Intermediaries Association (FIA), maintains that the role of the financial advisor cannot be underestimated in these changing circumstances…
When it comes to choice regarding funds and investments, consumers find themselves very spoilt at present. Recent government initiatives to enable transferability of previously “locked-in” investments from pensions to preservation funds has made it possible for consumers to shop around even on an annual basis to achieve good administration and best service. “These developments have been supported by the FIA and are welcomed by us,” says Came. “By creating a means for preservation funds to be transferred from one supplier to another for example (with a similar allowance promulgated for retirement annuities), consumers no longer find themselves locked into administrators and packaged products that no longer suit their specific needs.”
While on paper this is extremely good news for the consumer, this greater “financial freedom” has brought with it a corresponding amount of confusion. One of the most common misperceptions is that poor investment performance is somehow linked to poor administration. If you are investing in a retirement annuity administered by Insurer A, with the underlying investment managed by Investment Manager B for example, poor returns are not the fault of Insurer A, but rather Investment Manager B – so moving one’s retirement annuity from Insurer A will not on its own improve investment performance. It is therefore vitally important for consumers who are dissatisfied or concerned about investment performance to make use of an objective financial advisor to determine if their decision to switch administrator is, in fact, wise. Very often (but not always), by simply restructuring or switching one’s investments with the existing administrator, one can achieve the desired result – something your financial advisor can help make possible.
Recovery of outstanding costs by administrators when an investment product is moved also creates confusion in the market. Even though the life industry has agreed with authorities to reduce the charges when prematurely moving or cashing in investments, consumers need to be aware that a charge may still come into play. This is again where advice becomes critical. To take advantage of new allowances one needs to understand them in their entirety, as well as appreciate the associated implications. Specialist advice can make all the difference in the long-term!
That being said, if one seeks out advice it has to be with the appreciation that when it comes to investments and financial planning, often what one needs is not necessarily what one wants. Despite consumers being better informed than they were in the past regarding options open to them, they often need the famous “second opinion”. And, just as you wouldn’t trust your lawyer to perform an operation on you, one should not base investment decisions solely on what one has read in the newspaper or on the internet. Sometimes these conflicting sources of information can translate into one’s financial advisor disagreeing with one’s choice of product or investment, all the while having the client’s very best interests at heart. The main reason for this is that general advice given to the whole population hardly ever applies to a particular client’s personal circumstances.
As government and administrators continue to “free up” consumers to make decisions about their finances, it is important to realise that these are not trivial choices – but rather choices that will impact on their and their family’s long-term future. Increased investment mobility therefore comes with a greater need for knowledge and strategic, informed advice. When in doubt about one’s investment then, the choice is clear. Invest in a financial advisor!
