Why CAP Beats DIY

The rollercoaster ride provided by global markets recently has tested the nerves of many investors. Doing it Yourself (DIY) may have seemed a good idea for some, but there is no substitute for Consulting a Professional (CAP). The benefits of independent, professional financial advice can be lifelong, but they are never more evident than at times of extraordinary volatility, as we have seen since February this year.

As we wrote in last month’s client newsletter, ASIC recently published a report stating that in the early stages of the COVID-19 crisis when markets were at their most volatile, there was a rapid increase in the frequency of trading by retail investors and a decrease in the time they held onto securities.

In other words, ASIC noticed a concerning surge in the number of DIY investors engaging in short term trading strategies and “unsuccessfully attempting to time price trends”.

In volatile markets, market timing is a dangerous temptation. Empirical research conducted both in academia and the financial industry has clearly and repeatedly shown that the average investor persistently fails to time the market successfully.

One explanation is that when markets are in turmoil, emotions often are too. Our innate need to be in control can sometimes lead us to making impulsive decisions that often don’t benefit a long-term goal.

So why might the CAP approach (Consulting a Professional) make more sense for some than DIY (Doing it Yourself) and what is the rationale and ultimate value of taking this path?

At first glance, some consumers may think that seeking a professional financial adviser might make sense for those needing advice on asset allocation, retirement planning, investment selection, cash flow analysis, insurance, wealth protection, estate planning and so on.

But is that really the key benefit advisers bring to consumers? It may pay to think about this in another framework. For example, when you seek out an automotive service person, what are you paying for? Brake and transmission diagnosis and repair? Auto-electrical maintenance? Collision repair? Cooling systems replacement?

Actually, what most people want from automotive services is a car that gets them safely, reliably and efficiently from Point A to Point B. They want the car serviced in good time, they want a fair estimate of what it will cost, an itemised bill and a guarantee on parts and repairs.

Likewise, the value of a professional financial adviser — at least in the eyes of most existing clients — will often differ from the advertised services. To be sure, wealth strategy, asset allocation and portfolio advice are important components. But these are really just means to desired ends.

What people are paying for, in the final analysis, are guidance to a goal, peace of mind, a sense of security, a feeling that someone has their back and an assurance that they will be OK whatever the world throws at them. Furthermore, people value a sense of structure about their financial lives and an understanding of the choices at their disposal.

The technical tools that a financial adviser employs — an understanding of what drives returns, the role of diversification, a knowledge of the tax system, the techniques in rebalancing portfolios — are without doubt critical components in delivering those desired outcomes. But they are not what people are paying for.

In fact, a sound, professional financial adviser will play several pivotal roles for their clients, none of which are on the typical job description. Here are seven of them:

  • A Guide — Most people know what they want or, at least, know what they don’t want out of life. What is often missing is a sense of how they can get there. An adviser provides an independent plan, showing possible highest probability pathways and the trade-offs involved in each.
  • A Teacher — Many people’s sense of what drives returns comes from the day-to-day noise in financial media.  It is all about product and short-term returns. A good adviser shows the client what drives long-term returns and connects this to their lives.
  • A Coach — It is easy to make financial resolutions – to save more, to spend less, to grow wealth, to leave a legacy. It is not so easy keeping A financial adviser at his best will ensure goal accountability, keeping the client on their desired path and talking them off the ledge in anxious times.
  • An Organiser — Our lives are busy. Jobs and family commitments leave little time for dealing with the minutiae of insurance, portfolio analysis and rebalancing, cash flow analysis and on and on. A good adviser takes care of this complexity and frees you to focus on what really matters to you.
  • A Filter — The problem with the world right now is not in getting enough information. We are overloaded with the stuff. The challenge is finding the right information for us in a form we can digest. The right adviser becomes a trusted source and an information filter.
  • A Counsellor — Few big choices in life are simple. There are always competing imperatives. Advisers who can help you cut through the material stuff to your underlying values are worth their weight in gold. Yes, this is your But you still need someone outside your circle who can keep focused on the goal and true to yourself.
  • A Sentinel — The best financial advisers are not only looking at your circumstances as they are today, but what might be coming over the horizon to change all that. And they are mindful of your legacy – the welfare of future generations and how your wealth can keep working beyond your lifetime.

These seven roles are not exhaustive by any means. There are many other valuable services a professional financial adviser provides. But it gives you a taste of the sophistication and depth available.

Again, to use our car mechanic metaphor, Consulting a Professional (CAP) is not simply trying to fix your car, but is looking to ensure you and your family reach your desired destinations safely and reliably while enjoying the journey along the way.

That is where the true value lies.

Next steps

To find out more about how any of these measures may be of assistance in your individual circumstances, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the Oreana Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Gordon Thoms and David Conte of Calibre Private Wealth Advisers are Authorised Representatives of Oreana Financial Services Limited ABN 91 607 515 122, an Australian Financial Services Licensee, Registered office at Level 7, 484 St Kilda Road, Melbourne, VIC 3004. This site is designed for Australian residents only. Nothing on this website is an offer or a solicitation of an offer to acquire any products or services, by any person or entity outside of Australia.

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