Unlocking value for clients

Preenay Sathu, Channel Head at FNB Financial Advisory

In a world of financially savvy investors, cost benefit analysis is not only an evaluation method for the businesses they lead, but also an exercise they apply to their personal finances.

This astuteness of modern investors can be attributed to the information age, among various factors. How we should advise, the solutions we offer, and the timing of such investment decisions is information that is easily accessible to investors in today’s digital age.

This challenges the financial adviser to place more of an effort into understanding investors’ individual needs and developing outcomes-based investment strategies that unlock value, where benefits far outweigh costs.  

Various layers of costs

Paying advice fees can be viewed as a grudge cost by a number of investors. Full disclosure of the various layers of costs at the beginning of the advice process goes a long way in protecting the reputation and business of a financial adviser.

Upfront fees may be easily understood by investors; however, it is mainly the commissions and ongoing fees that clients tend to scrutinise. This is done more so during unfavourable market conditions when assets experience a drawdown.

A professional financial adviser should ensure that the investor derives maximum benefit out of each cost. This not only puts the financial adviser in a good position to defend fees, but also helps to protect the reputation of the industry in the event of a dispute.

Risk vs return

The current change in world leaders, which will most probably result in a shift in economic policies, is likely to have a negative effect on investment markets. In a world of investing, this effect may take the form of significant drawdowns wiping a lot of value from investment assets.

To mitigate this risk, financial advisers need to ensure investors have well-structured portfolios that take into account risk and deliver on expectations. A multi-asset portfolio can offer some level of protection against risk as market conditions affect equities, bonds, property and cash differently.

Investors also have options to choose the level of control they want over their portfolios. A fully managed discretionary portfolio gives the financial adviser flexibility to make the necessary adjustments to suit market conditions, thus unlocking additional value.

Investors who are most vulnerable to the effects of a drawdown are retirees as they do not have the advantage of time to recover losses. A financial adviser cannot over-emphasise the importance of a well capitalised and structured retirement portfolio.

Financial advisers should also help investors understand the difference between a market and retirement drawdown. The former is driven by a variety of economic factors while the latter is a result of withdrawal of money from a retirement fund.

Time considerations

With the world economy facing huge uncertainties, never has it become more pertinent for advisers to demonstrate the value of their expertise.

Clients need our guidance more during times of market volatility so we can help them stay the course.

Measure of value of advice

The emotional fulfilment an investor enjoys at the end of an investment term will be an important measure of the value a financial adviser brings into a relationship. It is therefore important to understand the goals of the investor as that is where the emotional connection lies.

Two accountants may earn the same income but their long term financial goals would be specific to their individual circumstances.

Adopting a goal based financial planning approach and tailoring an outcome based investment strategy is most likely to deliver on desired outcomes, compared to selling products not linked to a specific goal.

As conventional wisdom states, money is a means to an end. It is the role of the financial adviser to demonstrate that the benefit of relying on investment management expertise far exceeds the costs associated with it.