The investment landscape has changed profoundly over the past decade, making it easier than ever for individuals to take control of their own investment portfolios. It’s a simple matter for nearly anyone to trade shares via their online banking platform, for example, or to access a range of funds and products from an online stockbroker or wealth management firm.
Innovations such as robo-advisors – online ‘bots’ that ask you some questions, then use algorithms to recommend an ideal portfolio – are enticing people to opt for a DIY approach to financial planning and wealth management. The goal, for many investors, is to cut out intermediaries and the fees they charge in the hopes of saving money.
However, subjects such as tax planning, retirement planning and estate planning remain complex and the answers are not always online. It remains easy for an investor who doesn’t intimately understand tax laws to make a costly mistake. What’s more, without the benefit of an impartial view, even financially literate people can make irrational, short-term decisions that damage their wealth in the longer term.
Most people will, for that reason, benefit from financial advice, especially as they move from the early stages of their career towards starting a family, building wealth, planning for retirement, and finally, safeguarding a legacy for their families.
Here are a few signs that you could benefit from professional financial planning advice:
1. You are moving into a new phase of your life
Moving into a new stage of your life is an opportune time to sit down with a financial planner to optimise your portfolio for your new financial goals. For example, if you are reaching retirement age, you should seek advice from a professional about how you should invest the cash lump sum you are allowed to withdraw upon retirement as well as which living annuity product is best for you.
Or, if you have resigned from your job to start your own business, a financial advisor can help you decide what to do with your retirement fund pay-out. Should you invest it in your new business, rather than taking on debt, for instance, or transfer it to another retirement fund on a tax-free basis? Are the constraints of regulation 28 of the Pension Funds Act appropriate in terms of your overall global diversification?
Other times to seek financial advice include starting a family, purchasing your first home or moving to a new country.
2. You have no plan of your own
If you do not have a financial plan – and have no idea where to start with one – it’s wise to consult a financial advisor. An advisor can help you to understand what your financial goals should realistically be for the short, medium and long term, and then work with you to draw up a plan to meet these goals.
This can be particularly helpful if you are finding it difficult to make sense of the many different financial products on the market, if you are not sure which mixture of assets and financial products you should be investing in, how to get offshore exposure or how much you need to save and invest to meet your future financial objectives.
3. You expect to leave a substantial estate
One of the more complex financial matters most people face is structuring their estate in a manner that is tax-efficient, caters for liquidity requirements, minimises costs such as executor’s fees, and ensures loved ones are provided for. This can become particularly complex when you have assets offshore, a substantial property portfolio, or a lot of debt that needs to be settled.
A financial planner can help an investor to structure the estate to minimise duties and fees, and to ensure that there is enough liquidity to settle any debt. This is more complex than simply deciding which person in the family gets what from the estate – it’s also about minimising the costs and complex admin your loved ones will face in their time of mourning.
4. You have assets and liabilities than span
We are living in a globalised world, and it’s not uncommon for people to permanently or temporarily migrate to another country. If you are planning to emigrate, you should seek financial advice both in South Africa and your new home country to understand the financial implications – especially around tax (this is particularly relevant given the imminent change to the taxation of foreign earnings for South African tax payers).
For example, you may want to know whether it’s worth pursuing financial emigration in order to liquidate your retirement funds and move the proceeds offshore, despite the tax implications. Or you might need to understand your tax obligations in South Africa around assets you accumulated offshore while you lived abroad for a few years. This will require bespoke advice because the regulations are complicated.
Making sense of a complex world
One of the major reasons that some investors are reluctant to seek professional financial advice is that they hope to save money on the advisor’s fees. It is imperative that fees are understood, disclosed, and represent a fair value for money proposition for both the investor and the advisor. A good advisor will be able to pay for his or her fees several times over by helping you reduce estate related costs, optimising your portfolio for tax efficiency, helping you to invest in financial products and solutions that attract low management costs, and ensuring that your portfolio is correctly positioned from an asset allocation and risk- return perspective.
Most people are too busy with day to day life to keep up with the latest market developments, the newest tax laws and regulations, and the wide range of investment products on the market. Very often, individuals neglect their personal financial affairs due to the urgency and immediacy of the needs associated with careers, families, and businesses, and the impact of this can result in very poor long-term outcomes. A financial advisor will stay on top of the latest trends and developments and will be able to help you navigate a complex and fast-changing world with a disciplined and structured approach to managing your wealth. There is peace of mind in knowing that a trusted expert has your back.