Costs Costs and more Costs
There is forever a debate in our industry about costs, whether it’s the cost of advice, the cost of products or the cost of investing. This is often manifested in several ways in the press through the discussion of whether in fact you need to take advice or in fact if a DIY approach is better. Alternatively, you may have read that active investing doesn’t work and low cost passive funds are best.I guess in all walks of life we come across situations where we need to think about costs. Living here in Thailand where the cost of living is very inexpensive, it makes me smile when some of my friends prefer to walk an extra three hundred meters to sit by themselves and save ten baht on a cup of coffee. I tend to prefer to spend a little bit extra and enjoy good company and surroundings.
When it comes down to it, I suppose if I couldn’t afford the extra ten baht it may be a different story, however I can’t quite work out why some of my wealthiest friends still sit alone to save such a small amount. In finance and investing we often come across strange things, especially if you have been in the industry as long as I have. One of the most common issues is trying to persuade older clients that it is OK to spend money. What tends to happen is that they have been used to saving and scrimping for so long that it becomes impossible to become a bit more carefree with their savings.
Occasionally, we deal with clients who at one point in their lives had very little by way of savings or indeed cash. Their thought process is different, in that they fear going back to that point in their lives when they had nothing and tend to be very cautious as a result. This experience of many different situations only comes with time and I often tell clients that they might be retiring just once, whereas I have dealt with clients retiring hundreds and hundreds of times. This knowledge helps them understand not only what they are going through today but also allows them to get an insight into what the future might bring. For example, we find that spending patterns are quite similar for retirees, the early years see the greatest expenditure which then trails off as they get older and perhaps travel less.
Many clients tell me that the guidance and insights we provide are invaluable. Often when they have seen the results of giving their family some of their “inheritance” whilst still alive I receive letters of gratitude and thanks and not just from the children! You see, helping clients understand they can have financial security and that they can pass on some of their wealth can be very important. This saves on future taxes and allows parents and grandparents to see their family enjoy what they’ve worked all their lives to save. How do you put a price on this advice? Some will say it’s invaluable, yet you could read in the press that all you need to do is “google this” or “ask Siri that” to get advice.
In my experience, good independent financial advice is the starting point to reaching good decisions and good overall outcomes in terms of finances. Independent advice means you are not paying too much for the products you purchase and this in turn leads to investing in funds that are suitable for your circumstances as well as good value.What point is there in free advice, cheap products and low cost investment if none of these things are suitable for your circumstances? And this is the key to why advice is not only important and worthwhile but rather why it’s essential in a lot of cases.
I’ve often sat down with very bright, well educated people who are getting very small returns on their savings which their bank adviser has arranged by providing “guidance” ,whilst at the same time paying 20% per annum on store cards or other finance agreements. I remember one lawyer who proudly told me she had paid off her mortgage (saving 2.90% per annum) while making the minimum payment on a substantial credit card debt costing ten times that! Needless to say we reinstated the mortgage and binned the credit card saving thousands of pounds per annum and certainly much more than our advice cost.
So don’t forget, take time to enjoy coffee with friends and remember cost isn’t everything!
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