Wondering if you should hire a financial planner/adviser or DIY?
Hello, I’m Lance Baron, financial planner based in the UK. In the interests of my ongoing personal development and serving my clients better, I attended a course in San Diego where I learned that clients can be grouped into three types.
Do you recognise yourself in any of these descriptions?
These people go to a platform such as Hargreaves Lansdown to pick their own investment funds. It’s tricky for them to know everything they need to. They might try to be a day trader, and spend all day looking at a screen to buy and sell stocks. It’s a bit like going to the horse races. They risk becoming an investment junkie.
You probably know the expression: “A little knowledge is a dangerous thing”. We think it’s worrying when someone thinks they know more than us – we’ve been doing this job full-time for 30 years! Also, financial management is not just about investments. They also need to know about pensions, such as how to draw down their funds. And inheritance tax, and many other topics.
DIYers might choose this route because they don’t trust financial planners, or think their advice is rubbish. Perhaps they’ve had a bad experience in the past, so it seems a rational decision from their point of view. Maybe they had investments in the past and sold at the wrong time. (For more on this, see our article Stick with it).
Some people do this every time an investment falls – they get scared and they sell. This is the exact opposite of our advice. We say diversify and stick with the plan over the long term, because the markets always rise if you wait long enough. (For more, see If you can’t accept volatility, don’t play the game.)
These people pick an adviser’s brain (metaphorically, not literally), contemplate what they’ve been told, and then decide to implement about 2/3 of the advice they’ve been given.
They are often influenced by a third party. Probably not an expert such as their accountant or solicitor. Maybe a golf buddy or a mate from the pub. Perhaps someone who’s richer than them, so they assume they have more gravitas and must know more and their advice must be right.
They might believe in diversification but think it means diversifying between suppliers rather than between funds.
They might have an existing adviser and don’t want to leave them. This is an emotional choice, not a rational one. They’re embarrassed to say “No” or “I’ve changed my mind” or Goodbye”, even if it can be proved that they’re paying over the top, such as for an expensive tracker fund from a provider such as St James’s Place.
They don’t want to pay a professional financial planner because they’re used to having control and don’t want to relinquish it. They think to themselves: “I got this far without paying for financial advice, I’ll carry on like that.”
These people understand that they don’t know everything. They take advice in all aspects of life. They use an electrician when they need the house rewired. They pay a hairdresser when they want their roots done. They delegate their tax returns to an accountant. They appreciate that experts know more than they do. And they delegate financial planning to a financial planner.
They perceive that they get value from the experts they use. They value the advice they get and pay for. They do what’s recommended, and say things like: “If I don’t take your advice, why am I paying you?”
What this means to you
I spend a lot of time talking to clients about how they want to spend their life, especially when they attain financial freedom commonly known as ‘retirement’ (See our article The positive aspects of retirement.)
You can probably imagine that delegators are our favourite type of client, although we work with some collaborators too.
To decide what type of client you’d be, you have to ask yourself some questions.
- Do you want to have to keep up to date with financial matters on a daily basis? Do you want to get up at 6am every day to trawl the internet, look up what’s being said, sift it to filter out fake news, decide what advice is good and then act on it?
- Do you want to be grandad upstairs looking at a screen while the grandchildren are playing downstairs and wishing they were playing with you?
- Do you have better things to do in your life?
Having fun can’t be delegated. If there’s one thing we’ve learned through the pandemic, it’s that time with loved ones is irreplaceable.
You control what you do with your life.
You can spend time looking at financial matters. Or you can take time to look after your physical and mental health. You can play golf (when it’s allowed), bake bread, read books and grow flowers.
If you think you know better than we do, then carry on with the DIY approach. If you’d like to delegate or collaborate with us, please get in touch.