Call for a Radical rethink on financial planning

Cost-shy consumers are cutting themselves out of a fortune and are encouraged to do so by a legislative and media environment focused on fees not outcomes. To maximise their financial wellbeing, a major attitudinal shift is required by the average consume

The call for a radical rethink on financial planning comes from Lara Warburton, managing director of Imara Asset Management, a firm with a growing book of advisory business that focuses on the needs of salary-earners preparing for retirement.

She flags cost concerns as one reason people in urgent need of financial advice delay a consultation and put off remedial action that in a couple of years might add hundreds of thousands of rands to their retirement pot.

Warburton adds: “Delay can cost you a fortune if your premiums and monthly provision are misallocated. Missed opportunities far outweigh the cost of good advice. The only proviso is that the consumer consult qualified professionals, not financial product salesmen.”

In typical scenarios, big savings (and better results) can be achieved in at least five areas:

· Making a will: Who is the executor? Banks offer free wills but often charge maximum executor fees. More cost-effective options are available. Explore them.

· Beneficiaries: Have you nominated beneficiaries on all life and pension policies? Are nominations up to date? Do the various product providers have the correct details on file? Failure you tick this box can result in financial distress for a bereaved spouse or surviving children.

· Section 37C of the Pension Funds Act: This clause refers to nominated beneficiaries or other “dependants” with a possible claim on pension entitlements. Clarity on the issue is essential if loved ones are to be properly provided for.

· Life cover versus other savings and investments: Until middle age, life protection may be vital to provide for a spouse and children and cover various obligations. As children leave home and obligations run down, money can be reallocated to better performing investments, giving long-term financial provision a major boost. Get the balance right and in a few years your long-term wealth feels the benefit.

· Risk-shy can mean wealth-shy: Failure to invest in high-performing risk assets when an individual can look forward to many years in the market will hobble an investment plan’s long-term performance. Optimise your portfolio’s equity component. The difference between unwarranted conservatism and judicious ‘risk’ allocations can run into millions over 10 or 20 years.

Says Warburton: “The yardstick is the ultimate outcome, not short-term cost. The difference can be a comfortable retirement or financial distress. Don’t let cost concerns impede your access to good advice. Cost fixation can leave you in a fix.”