Some people seeking financial advice may already have an idea as to why they want to invest – a pre-set notion or financial target in mind. For example, they may want to start to consolidate old personal pension plans or purchase term life insurance.
In other cases, people wish for a specific investment idea. Maybe they have moved to Cyprus and want to be ‘tax efficient’ with their hard-earned money, they may want to know how much of their portfolio they should be allocating to US markets versus the UK. Typically they want to know ‘how’ they can invest and ‘what’ products they should invest in.
Financial advice vs financial planning
Traditional financial advice focuses on the what, before the how, with the why finishing last. This approach can lead to an undesirable outcome for clients and is often described as being transactional.
For example, let us consider a client who wants advice on the ‘best’ investment fund. If the adviser bases his or her recommendations on purely the fund that has performing the largest return currently available over say the last month, without nailing down the ‘why’, the fund value at the end of the investment period may not meet the client’s expectations.
True financial planning explores the why, before the how and then the what. This process is much more effective for addressing the client’s underlying needs and expectations.
A vital part of building a financial plan that will deliver success is to identify each person’s ability to cope with financial shocks. The world of investing is inherently unpredictable. Stock market returns are not linear. Your financial planner should be there for you to help you create your financial strategy, to see it through and help you deal with important, sometimes unexpected life events.
As a financial planner, I prefer to put more emphasis on the ‘why’ as the first step in the financial planning process. Knowing why a person wants to invest is essential before exploring the ‘how’ (account type) and the ‘what’ (the right investments). I need to understand your ‘Why’ so we can work in synergy and create a financial plan that provides the ‘how’ and the ‘what’? As a life centred financial planner my job is to help you achieve your goals and best out of life with the finances that you have available.
In financial planning, the why is the underlying reason or need of the person that wants to invest. Here is a couple of simple examples:
An 18-year-old is entering the workforce, debt-free, after completing her schooling in Cyprus. She may not have an early retirement goal, but saving 10% of her income in a pension plan would put her on a successful pathway towards retirement planning.
This young person has many years to achieve her retirement goals, so only small steps are required today, freeing up short-term cash for her to save or invest towards other discretionary purchases.
On the other hand, a couple in their 50s who have recently moved to Cyprus, with little retirement savings, but who want to retire in the next decade, would need to make up for lost time, because they cannot count on as much of the benefits of compounding growth. A much higher percentage of their surplus income needs to be invested.
In these straightforward cases, knowing the why (the age implications) helps to guide the how and the what. The ‘why’ can – and often will – change. I see it as my role as your planner to ensure that the resulting ‘how’ and ‘what’ are dynamic enough to evolve as the ‘why’ changes.
Consider a husband and wife team at 59 and 60. Previously they had been given transactional based advice for a small investment with no considerations as to their life plan. By learning about the couple, their aspirations, their preferences and desires when they came to see me we were able to consider the bigger picture. Now consider the ‘Why’. That they had wished to retire early from full time work and enjoy their life. They will not commence any Cypriot / UK state or final salary pensions for a few years. Next year they wish to spend a number of months travelling around Australia and New Zealand. A Far East cruise is also on the to do list. By our collaboration and creation of their life plan they know they can have the upgraded cruise cabin and fly out and back in business class seats, improving their short term experiences without it ruining their longer term living standards in retirement. I know we have helped them improve their Return on Life, not just their Return on Investment.
If you want assistance from someone who offers today’s ‘best’ investment (Clue – It won’t be the same investment next week), then you probably aren’t best suited to our firm.
If you are interested in being listened to, being guided by a qualified, experienced financial planner, if you want to create financial plans with your ambitions and aspirations in mind, and want to be assisted over the long term including the good and not so good times in life then contact us to make an appointment.
Our goal is to seek the best outcome for our clients, always.
Lee Hinton is an Associate Member of the Chartered Institute of Securities and Investments, holds the Cyprus Ministry of Finance Advanced Examination certificate and holds the UK Diploma in Financial Planning.
