To answer this question, you need to be aware and consider the true cost of DIY.
The financial planning industry has, by enlarge, not done itself any favours in the way it framed their value and what they are being paid for by clients.
The planning and advice are free, but you pay for the ongoing management of the portfolios and the products sold. At least this is how it is perceived by clients. Yes, I am generalising here. When you unpack the knowledge and experience required to do financial planning for clients nothing can be further from the truth. The ongoing planning and advice based on a relationship of trust far exceeds the value of selling products and managing the performance of portfolios.
The internet provides an abundance of information and resources. There is no want for how-to books on personal finances. Automated guidance and personal financial calculators are freely available on the web. There is hardly an excel calculator or financial formula that is not available and for free. You can crunch your own numbers if you are willing to spend the time and understand all the nuances.
Information on products is easily accessible. You can implement your own conviction and ideas without requiring any intermediation at most product companies directly. All you need is internet access.
You can be your own “One man Band”! Some people are quite good at it. But you will need the same body of knowledge of an experienced advisor to give yourself decent financial advice.
When you consider the width and depth of knowledge required by a financial advisor to be able to do holistic financial planning you will appreciate the level of personal commitment and dedication required to be able to do-it-yourselfer. Surely nobody would want to DIY themselves to a lower standard.
Knowledge and spreadsheets however are not enough. You need experience and this usually comes at a cost. No short cuts here for the DIY approach.
Your life doesn’t fit into a spreadsheet and “life quakes” strike when you least expect it. The term “life quakes” was coined by Bruce Feiler in his book “Life is in the Transitions”. It refers to events and transitions that unfold in your life that were unplanned and usually unwanted. It is events that disrupt our lives that can be personal (marriage or divorce) or collective (recession or pandemic).
Either way we need to respond to and navigate changing circumstances and life transitions.
“The ultimate form of preparation is not planning for a specific scenario, but a mindset that can handle uncertainty.” – James Clear
The human side of financial planning is probably more important than the number crunching exercises on a linear projection. Your life is not linear. There is more to consider than just investing money.
It is also about being mindful how you invest your time and attention. Unlike money time is finite. Humans don’t have an expiry date and we just don’t know how much time we have left. As social beings we are deeply dependent on social interaction as it affects our happiness and quality of life.
“It was crazy to see in some of the research that in terms of both health and happiness relationships are second only to genetics. And relationships have an effect not only on our overall wellbeing, but also on our physical health. You can’t do much about your genetics, but you can do something about relationships.” – Eric Baker
Even if you are good at DIY, it hardly makes sense to spend your limited time and energy doing something that someone else can do for you. With limited time we need to make intentional trade-offs.
What are the things in your life that are important but nobody else can do it for you? Things that you cannot pay someone else to do on your behalf. Nobody can do exercises for your benefit neither can they play with your children for your fulfilment. They cannot socialise on your behalf with your friends and family. Your health and happiness require that you are present to experience moments and make memories.
Delegating your money management to a trusted advisor will free you up to spend your time and attention in the other areas of your life that greatly impact your health and happiness. A trusted advisor can help you to avoid costly mistakes when extreme events unfold. It is at these extremes where our behaviour causes long term-damage. Results don’t come from knowing, it comes from doing.
Having the most cost-effective fund that has a solid long-term performance record is of no benefit if you do not stay invested through market cycles. The potential benefit of cheaper fees or long-term performance usually gets destroyed by investor behaviour.
You would be hard pressed to find any better value than a financial planner who acts as a fiduciary on your behalf and holds you accountable to ensure that your actions are aligned with your deepest values. An advisor that can guide you through difficult times and market conditions to ensure that you behave in a way that is in your best interest is well worth their fees. The “advisor alpha” is a result of managing investor behaviour, not managing the markets.
“Delegators differentiate what they can confidently hand off to someone else from what they must take care of themselves. They see the benefit of a trusted advisor that free them from having to worry about their money so they can focus on other, more important things in life.” – Bill Bachrach
Be a “do-it-yourselfer” where it counts. Spend your time on what’s truly important.
A trusted advisor will keep you safe no matter what life throws at you! Be it the risk of dying too soon or outliving your capital.
Time is scarce. Having peace of mind is priceless.
The above article was written by Marius Kilian.
*Bill Bachrach, “Values-Based Financial Planning”
*Eric Barker, NextBigIdeaClub – “The Surprising Science Behind Better Relationships” (28 Oct 22)