Can working with a financial adviser could make you wealthier?
According to a recent report by the International Longevity Centre, financial advice can leave savers around £50,000 richer over 10 years. There is also new evidence that financial advice offers especially good value for the less well off. In case you are wondering how this works, here are five ways a financial adviser could make you wealthier.
The role of a financial adviser is varied and covers many disciplines. From pension planning to inheritance tax advice, and mortgage advice to wealth management, there is so much they can offer.
1: Planning for and achieving your financial goals
When Alice asks the Cheshire Cat in Alice in Wonderland “Would you tell me please, which way I ought to go from here?” the Cat replies, “That depends a good deal on where you want to get to.” It is the same for all of us – the first stage in achieving your long-term financial goals is to have clarity of what they are.
This is where good financial advice comes in, helping you determine where you are now, and where you’d like to be and putting together a simple plan to help you get there.
Related reading: Six Steps to Setting Financial Goals
2: Spotting and eliminating bad habits
Humans have evolved to survive over many thousands of years. Unfortunately, we have also learned many bad habits and biases along the way, many of which we are not even aware of. We buy high and sell low, we value the near term more than the long-term, we hold onto investments that have fallen and believe information that reinforces our own views.
Part of your adviser’s role is to act as someone looking in from the outside; a coach – helping you avoid these mistakes. Research shows that investors may be losing up to 2% of monetary growth per year by falling into common traps. Your adviser should help you avoid these – especially through tough times like divorce, death, redundancy and hard economic times.
3: Using risk to your advantage
There is a malicious risk that few investors are aware of called sequence of return risk. It can have a massive impact on how long your pension fund lasts – in the worst case it could reduce your income by nine years or more.
Your adviser should be able to help you plan and take simple but effective steps to mitigate that risk – and give you a “longer lasting retirement income”. Risk is a complex subject with many dimensions – a financial adviser will help you navigate and understand risk to ensure the solutions recommended meet your needs.
4: Paying less tax
Paying tax on your lifelong investments and savings can cancel out decent returns. Your adviser would ensure that you use all available tax reliefs helping you keep more of your heard-earned returns. Poor planning could see up to 40% of your savings and profits paid to the tax man. Your adviser should give you confidence that your savings and investments remain as tax efficient as possible.
A good financial adviser should be able to highlight the different ways to avoid inheritance tax as well as providing advice on investing in a pension. After all, pensions along with the Life Time ISA are tax-efficient investments.
5: Creating an investor mentality
Financial advisers spot opportunities. They are generally the first to know about new products, new tax freedoms and better strategies. They are your eyes and ears in the ever-changing tax, legal and product markets. In addition, ever tighter regulation ensures that your adviser acts in your best interests.
Financial advisers are regulated by the FCA, have to have a statement of professional standing and have to maintain minimum standards through continuous professional development and keeping up to date with all financial matters. This ensures that you get the best possible advice. They can ensure that you diversify your portfolio and reduce cost and potential tax, placing yourself in the best possible environment to maximise returns.
Many savers worry about whether they can afford a financial adviser. The question should be whether you could afford not to have one in your corner. There are many lessons we can learn from the wealthy, and working with a financial adviser is just one of them.
5 ways a financial adviser could make you wealthier – summary
And there we have it – 5 ways a financial adviser could make you wealthier. To summarise everything starts with a plan and setting goals. Understanding risk is such an important factor too, as is reducing taxes where possible.
Lastly, as discussed a big part of your financial journey, is about mindset. Having an investor mentality will play a big part in being financially successful.