What Does a Financial Planner Do?
We hosted a webinar a while back – What Does a Financial Planner Actually DO? – where I ran through the different things a financial planner does to help people build their best financial life.
I covered the fundamentals of our approach, the building blocks of your financial life and the tactical knowledge we use to help strengthen those blocks.
In that presentation, I discussed the work I do in improving somebody’s ‘financial trajectory’. What seemed like a bit of a throwaway point prompted a few questions, so I thought I’d expand on just what that means.
Why it matters, how it can help and – hopefully – the broader context it lives in.
Because, for all of the complexity around financial advice in Australia – the rules, regulations, requirements and rigmarole – the fact is that financial advice is actually a pretty simple service.
We help you make better decisions about your money.
That’s it.
And given money is a central part of our lives, that means the impact of advice – good or bad – can be massive.
There is, however, rather a bit of confusion around just what a financial planner does, so I thought it might be useful to explore what we do and how we can help.
Puts The Rules Aside
There are, it’s fair to say, a huge amount of rules and regulations around giving financial advice. Who can do it, how they do it, when they do it and even where they do it – all of these points are defined and regulated in a series of acts and regulations.
All of which have been implemented to protect the interests of the people we serve – our clients.
Having such a robust system in place provides security and, hopefully, peace of mind for clients.
But they’re dull as dishwater and, frankly, table stakes. Nobody boards a boat to talk about the life vests.
So let’s put them all to the side for now (I have other posts that explore them in more detail anyway) and focus on what advice really is.
Real Financial Advice
At The Advice Gallery, our mission is to increase the financial knowledge and literacy of the community we work with.
Which means that we work hard to provide information that people can use to develop their know-how about money. How superannuation works, some ideas around structuring your banking, budgeting made simple – general, foundational information.
Beyond that, though, are those moments when people need personalized advice that’s tailored to their situation.
Moments where you need to make a decision that involves your money – and you’re just not sure how to choose.
Moments where you know things need to change, but you’re not sure how.
Moments where you’re confronted by an array of options, information and choices – and just don’t know where to start.
That’s where personal financial advice comes in.
Real financial advice helps you navigate these moments. With clarity and confidence.
Tactics vs Strategy
There is a difference between tactics and strategy. The strategy is the overarching plan to achieve an objective, while the tactics are the actions and steps taken to execute that plan.
Take the example of building a house.
The objective is building a home for your family to live in.
The strategy is the architect’s plans and blueprints.
The tactics are the steps built into the plan to execute the strategy, as well as the thousands of decisions made along the way.
Tactics can be fluid – you can change the floor tiles or the plumber or the landscaper as needed – while the strategy should be fixed so long as the objective persists.
The same is true when it comes to financial planning.
Historical Issues
Historically, financial advice has been all about the tactics.
What super fund should you have, what insurance should you pay for, how should you invest your money, what’s the ‘best’ option.
And these decisions are all important – good or bad choices with these bricks of your financial house can have a disproportionate outcome.
But they’re not the main game.
The main value of real financial advice is identifying the strategy that’s most likely to help you achieve your objectives.
(A sidenote here – the reason advice has been so tactically focused is that, historically, it was given by the owners of products that met a purely tactical need. It’s funny that when all they had was a hammer, advice often involved finding nails.)
Your Financial Dream – The Big Lap
For instance, say you’ve dreamed – ever since your daughter was born – of taking a year off work and caravanning around Australia. This ‘big lap’ has been a dream of yours for years now, but you just can’t see it happening.
Where would you start?
The siloed, ‘tactical’ approach to financial advice would be woefully inadequate for you and your dream.
The traditional approach would have been to try to ‘fix’ your super, insurance and investments rather than deal with your real dream – the big lap.
Realistically, what use is there in making sure your super fund isn’t too expensive when it has nothing to do with your dream?
It’s like polishing your shoes in a snowstorm. A worthy exercise, but not your most pressing concern.
But real advice in this instance would be incredibly valuable.
Real advice would help you:
Work out what it would cost to fund that year off.
How much you can, and how much you should, spend on a caravan, car and training.
Explore the mechanics of living on the road for twelve months.
Share experiences and knowledge from having worked with other people who have done the big lap.
Set out a budget and plan for your money to cover the twelve months.
Identify gaps in the plan and steps you can take to fill them.
Work through the many, many trade-offs involved in pursuing your dreams. For instance, going when your daughter is 5 is very different to going when she’s 8 – different financially, different for her education and different as an experience.
Real financial advice helps you with all these steps.
Falling out of that might be recommendations around which products (tactics) to use to execute on the strategy.
But our historical focus on tactics in advice, over strategy, has been like choosing your tyres without working out where you’re driving.