How to engage with your financial planning

I recently read a short article on why you should ditch your adviser and by doing so engage with your own financial planning. I was delighted to see mention of this but the journalist didn’t expand on this and in the second blog I want to expand on this further. For me financial planning is all about identifying goals and then considering how these are achieved. Only when you do this can you consider how you invest to achieve this.

Recently I met someone who was just starting out as a financial planner after working in a large insurance company. He highlighted the importance of cash flow modelling and how this would be the secret of his success. I have never engaged with these in the past and so I started to look at these. My feeling was that many of these systems are simple too expensive for what they do, however it did make me think that you need some sort of simple spreadsheet to put your plan in place.

In developing a system I think it does highlight the value of advice because of the different scenarios that you face. Let me expand further using a case study.

Mr A Doe is 45 and has worked out he needs £2,000 a month net when he retires at 60, he knows that at 67 he will receive a state pension but cannot build this into the equation at this stage.

Firstly the £2,000 is in today’s terms, assuming inflation of 2.8% this would mean he needs around £3,000 per month at age 60. He has £100,000 in a pension fund and £60,000 in investments. He is also paying £500 p.m. gross into these investments. Assuming net growth of 5% after charges, fees etc he will be short by £1,000 p.m.

Let me take this a step further, if the £60,000 was in cash and he was paying £250 a month into the cash savings the shortfall would be £1,500 p.m.

This case study for me highlights why you should not ditch your financial adviser, there are many different scenarios to this example. If he has cash, it highlights how much it could deplete the retirement savings; it also highlights whether a more tax efficient investment like an ISA could mean he pays less tax and therefore reduces the shortfall. With the tool you can change the amount of retirement income, the percentage of income you take from your investments etc to deliver a road map that works for you. It also goes further to show the impact of inflation, growth and income in retirement to see how long your investments could last in retirement.

The point is this, the tool is important because it is a way that the adviser and client can engage in the plan. Once the client is happy with the plan, then the adviser can look at the best way to invest the money to achieve that. Many advisers will have developed similar tools (or use cash flow modelling) so when journalists and others question the value of advice this provides a snippet of what I would argue is a very important part of the financial planning process.

Of course savvy DIY investors will already be doing this but as I have highlighted before, product providers do not provide this detail and with financial education being so poor fewer are following this route. There is nothing wrong with DIY investing if you do this work at the start, and continually monitor it then it should work but if you don’t then it will go wrong. The question is not about cost, the question is about value. Do you believe that what a financial planner delivers to you is added value beyond what you could do and if you believe that then it is worth paying for advice.