Do you need a financial advisor?
Liz Koh is an authorised financial adviser and author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press.
Technology is revolutionising the way financial products are developed and sold.
Fashion has moved online and so have insurance and investment. Times sure have changed.
It wasn't that long ago that "the man from the Pru" would come knocking on your door, armed with a briefcase full of application forms to sign you up for everything from insurance for your house to a whole of life insurance policy and a retirement plan.
Those sales agents earned a substantial commission for every sale they made. They might send a birthday card once a year in the hope that that it might prompt another sale but, other than that, you probably wouldn't hear from them.
Thank goodness times have changed. While commission agents were mostly people of high integrity, the way in which they were remunerated encouraged them to maximise sales rather than put their clients first. Of course, the better ones who wanted to build a lasting career knew exactly how to get the right balance between sales and service, but the temptation was always there for unscrupulous people to make a quick buck at others' expense.
The introduction of the Financial Advisers' Act in 2008 after the global financial crisis set new standards, particularly for the way in which investment products are sold.
Investment advisers are bound by a code of conduct under which they must put their clients' interests first. This Act has recently been reviewed, and it is likely that insurance advisers will soon be bound by the code of conduct as well.
Financial advice is evolving from a sales process to a professional service that goes beyond products. Meanwhile, technology is leading to an unbundling of sales from advice.
Ideally, the advice will come first, and online sales will be part of the implementation of the adviser's recommendations. So why use an adviser at all?
1. Finance and emotion are inextricably linked
If only financial decisions were black and white with a clear distinction between right and wrong. Everybody's situation is slightly different. The best decision is one which takes into account your goals and aspirations, your feelings about risk and return and your choices about how and when you want to use your money to enjoy life.
An adviser can help you work through these different dimensions to get to the solution that best fits your needs.
2. Good advice helps you avoid making bad choices
Fear and panic can lead to financial loss. When share markets are volatile, emotions can easily override common sense. Panic selling, such as the recent Brexit sell-off, can turn a fall in value into to a loss. Good advisers become the voice of reason and objectivity, focussing your attention on long term returns and goals.
3. There's just too much to know about
There is a huge array of product options available with many differences buried in the fine print. On top of weighing up costs, benefits and risks, there are tax implications and a need to consider estate planning and relationship property issues before making a final decision to purchase a product.
4. See how you compare, and learn from others
Advisers talk to many different people about their financial affairs. They know how your situation compares with that of your peers, what has worked best for others and what you need to do keep your financial affairs on track. Sure, you can compare notes with your family and friends but they may not be the best benchmark or have enough knowledge to guide you.
5. It's not about getting the highest investment return or the cheapest insurance
Financial advice is never just about the product. It is about matching individual needs with the right solution and taking a holistic view. High investment returns are usually accompanied by high risk; low cost insurance may not provide the cover you need.
6. An adviser helps you achieve your goals with the best use of your available resources.
At the end of the day, it is outcomes that are important. There is a large body of independent research which confirms that those who use financial advisers on an ongoing basis achieve higher levels of wealth.
The advice given here is general and does not constitute specific advice to any person.
Written by Liz Koh. First appeared on Stuff.co.nz.