S3E9: Is Financial Advice Worth It?
Tom Morgan has worked in the financial advice industry for 12 years. Recently he decided to go it alone, leaving the firm he’d been working with, because he has big concerns about how the industry works.
What you should remember from this episode
• Tom can’t see any evidence that active investment management is better than passive over the long term
• Tom sees a big distinction between financial advice and financial planning. Planning is where advisors can add a lot of value, he thinks.
• In the last 12 years, he’s seen the industry consolidating, leading to fewer firms, but bigger firms.
• Firms like St. James's Place only sell SJP products. This means they’ve got a restricted advice proposition rather than independent.
• If you’re an independent financial advisor (IFA) you can have a bigger toolkit because you’re not restricted to a limited set of products you can advise people to buy.
• Here are some things to ask financial advisors to evaluate them:
- Do they offer planning or just advice on investments?
- What is their investment philosophy, e.g. active V passive?
- What’s their fee structure? It should be clearly explained (make sure there aren’t any exit fees).
• Here are Tom’s fees at the time of recording for example:
- Financial planning - fixed fee of £1,500.
- Then he charges based on how much is invested via the tools he suggests - he gets 2% of the first £200k and then 1% of anything thereafter. This is a one-off cost.
- And then there are ongoing costs. Most clients pay 0.85% based on the value of the assets he’s managing for them.
• His minimum (for the assets you’d need to give him to manage) is £200k, but he says you can find other bigger firms with £50k minimums.
• Regulations keep changing - the latest one is Consumer Duty. These changes create more work for financial advisors, which increases their costs, which gets passed onto clients in the form of fees. The regulator’s intent is to drive better outcomes but as a result financial advice gets more expensive and less accessible to most people.
• Financial planners can be particularly valuable as people approach retirement, e.g. for tax planning.
• The mindset shift required as you enter retirement, from accumulating to decumulating, is challenging for most people.
• Tom says in those early years of retirement you want to spend the most - whilst you’re fit and healthy.
• A good question to ask: if you went to the doctor and they said you’ve got 5 - 10 years to live, what would you change? What if you had 6 months to live?
• Before you start thinking about investing, Tom says you should get your house in order - stuff like getting your emergency fund in place and getting rid of high interest debts.
