Our industry is curious – everyone is supposedly an expert in their field and yet investors are often left more confused and with more questions than answers.
There are several factors that contribute to this. At every braai there is a Tom and a Harry who are bitcoin experts, or someone who believes that they have an insight (that the market does not yet have) into where the price of Apple or Amazon is heading.
In this confusing era of mass information (and natural scepticism) it is therefore quite correct to ask whether or not one even needs an advisor or the services of a discretionary fund manager (DFM) for that matter. Where the proof of the latter is often in the performance pudding, we are saddened to see quite often how investors forget exactly what the value add of a good advisor is and the myriads of times that this often saves us all from our own worst investment natures. Allow me briefly to elaborate.
The large insurance companies and banks rely on creating an air of mysticism around the products that they provide in order to make their value proposition seem like alchemy (most notably to justify their fees) when in fact any advisor worth his or her salt can help clients cut through their marketing gumpf to the meat of the matter. The product landscape (and tax consequences) is sufficiently complicated even before these large firms come up with marketing campaigns obfuscating simple truths and easily calculable questions such as “how much is enough for my retirement?”.
Product knowledge and tax advice are however merely the tip of the iceberg. Having an advisor also means that we condition ourselves to be disciplined about investments and saving – something which otherwise usually proves to be a very real challenge for most of us if left to our own devices. Advisors are also a good dispassionate check for how well we manage to remain on-plan with the goals we set for ourselves, as well as how to assess what the truthful and accurate trade-offs might be for not reaching some of those goals.
It is however in the third area of helping to manage investor behaviour that we most often see the true value that having an advisor lends to creating and preserving wealth for clients. Fear and greed are ingrained in our psyche and we all lack the ability to be objective about situations that are personal or near and dear to us. Merely think of how often we are all excellent at dispensing rather good and objective relationship advice to others, yet how we struggle to manage to have that same objectivity about our relationships. The same holds true for investing and we have seen it again and again. Without the caring yet dispassionate guidance of a good advisor, most investors that we have encountered tend to fall prey to basic behavioural finance traps such as aforementioned fear and greed – wanting to buy stocks when they are inflated valuations or wanting to go to cash when markets have plummeted. Succumbing to this behaviour ends up being one of the most destructive things that investors can do and which is unfortunately part our natural inclination, making it incredibly difficult to unlearn.
The last major benefit of utilizing a good advisor is critically important in my view, however it is often heralded as a cliché and hence overlooked. Having someone who you can genuinely trust to look after not just their own interests, but also yours, provides a peace of mind which money cannot buy. It is also all good and well to do the right things to ensure a comfortable retirement, but ironically we are often slaves to our own success and it is then equally useful to have someone (informed with accurate data) there to tell us when it is also a time to relax – when we have met the goals that we have set for yourself – and that it might crucially be appropriate to enjoy life and the fruits of your labours without unwarranted fear.
The biggest gift I ever gave myself financially was finding a good advisor and not merely listening to their advice, but also following it. It is something that I would wish upon, and for, anyone that I genuinely cared about.