My financial advice business has been around long enough now to have worked with a wide range of clients from many walks of life. Each with their own unique situation and therefore, needs. When receiving advice, tailored advice is a necessity and there is definitely no one size fits all approach.
But there are a few common threads or categories that frequently pop up that clients often need advice on.
Investment location
It is common to see clients investment portfolios too diversified. For some reason, people love complexity. The more the better. But often when it comes to investing. Just a few smartly placed managed funds can be more than enough diversification. Overdiversification is one of the biggest client issues that I come across in my practice as a financial adviser.
It’s probably better than the alternative – Under diversification. But overdiversification is not the most efficient use of money either. For every investment you have money in where you don’t need to be, that is money that could have been placed elsewhere. Overdiversification can lead to higher risk due to higher concentration in certain areas of your portfolio, as well as more complexity than you need.
Investment allocation
Another common area of concern for clients that needs attention is investment allocation. Many clients think they are doing great with a great choice of low cost funds that is well diversified thanks to what they read on the internet. But choosing the right funds is only part of the equation. Choosing how much to put into each fund is also of upmost importance.
An inappropriate allocation, of which I see all the time, means a much poorer relationship between risk and return than you would get with a more optimally allocated portfolio. It is difficult to get that information online or from friends as it relies on an intimate understanding of your financial situation, which a financial adviser can provide. You could be leaving a lot of money on the table or you could be placing yourself in more risk than you hoped or thought.
Placing all bets on housing
A common scenario for clients is to have over 70% of their net worth in housing. Younger clients and that number can be much higher. At a young age, there is nothing wrong with that. Just buying a house is a big achievement in this country! Of course it will take up a large percentage of a young person’s net worth.
But where I see the problem is when older clients have clearly upsized houses frequently or not saved much money outside of the house. Thinking KiwiSaver and a paid off home will be enough. Sometimes it may be if your expenses are very low. But often it isn’t.
I have clients with many types of goals and dreams including taking sabbaticals, early retirement, semi retirement and more. All those ideas need money to fund them. These liquid goals are often in direct contrast with putting more on housing which is illiquid. Some people can have it all with a good enough spread of assets. But many clients think they can have it all when in reality, they may need to make some decisions or trade offs to make their dreams happen. This may include not buying so much house, or maybe not paying off the mortgage quite so quickly.
the wrong KiwiSaver fund
Many clients have been sold on high fee KiwiSaver funds. Costing hundreds of thousands more than lower fee alternatives over multi decade periods.
In addition to this, I have helped many clients change into the correct type of fund. For example, in most instances a 50 year old in a balanced fund would be considered very conservative. But this is quite a common scenario. Or even a 60 year old who may have enough money outside of KiwiSaver to last to the age of 90 sitting in a balanced fund is probably not ideal either. Both investing for probably general rules they have heard such as an allocation of 100 minus your age or anyone at the age of 60 should be in a conservative fund.
As with most financial advice, there is never one right answer for all. Advice is entirely situational.
Waiting too long to make life changing decisions
I am guilty of this one myself. Waiting too long to leave undesirable jobs for the security and income. Or too long to change that job. It sometimes takes an outside perspective, an independent and unbiased person, to help you see things more clearly.
I have some clients who are hesitant to do the thing they always wanted. Maybe go part time or retire early. Perhaps take that two year sabbatical while the kids are young. Or maybe a change of career. I have found though that people who tend to dream and think about these things are often pretty good planners. Sometimes they just need a push or some extra motivation that things will be ok financially.
For me, this is probably the biggest benefit of financial advice. For if money isn’t for doing the things you dream of, then what is it for?
Final thoughts
A lot of us have blind spots, and other people who give advice may mean well but they don’t know you as well as they need to. A good independent financial adviser can help add significantly more value than the cost of the service. If you are reluctant, I’d still love to hear from you. I even turn away some clients who I think don’t need any help or want the wrong kind of help from me. So do rest assured I always have clients best interests at heart. Sharing financial information and life goals is a highly personal thing to share and you deserve the upmost respect in doing so.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here