Firstly, a 16-year long study by Vanguard found financial planners improve investment performance over time by around 3% net.

This is not insignificant and means that even for small investors, a financial planner will not only pay for themselves but provide the expertise to help navigate and manage two major threats to the success of investment strategies, namely, market volatility and emotion. A win-win for all.

There are many tasks a planner undertakes on your behalf on top of managing investment strategies and they are best summarised as behavioural coaching.

Put simply, behavioural coaching is the way a financial planner manages investor 'emotion' and 'reaction’ to short-term market ‘volatility’ to ensure long term goals are achieved.

A good example of this was the GFC. Planners often talked of the stress of having to explain the correct path under such extreme circumstances. In the end, though, the majority of investors who played the ‘long game’ have recovered well.

This form of control is hard to achieve when an investor is acting alone, it almost always requires teamwork and professional help.

Behavioural coaching centres on four issues:

1. A financial plan as the anchor to all actions.
2. The setting of clear expectations at the beginning.
3. Managing the emotions that accompany periods of market volatility.
4. Working together to ensure an effective planner / client relationship rather than simply reacting to market activity.

Behavioural coaching may also involve assisting in areas such as budgeting to save money now to help attain goals later.

There are four components that you and your planner work on together. These are:

Goals

Without goals there can be no planning. However, goals must be realistic and for many investors this is itself difficult because of their starting age. The earlier a person has a financial plan, in most cases, the better the outcomes.

Discipline

Market noise and emotion means decision making is difficult. It may even mean cuts now to help win in the end. Discipline is very hard to maintain on your own so help in this area is a major contributor to attaining long term goals.

Balance / asset allocation

This simply means not putting all your eggs in one basket. Spreading the risk may mean the full extent of up swings aren't gained but it means that the full extent of down swings aren’t either. Balance means 'slow and steady' and we all know how that works out.

Costs of investing

A planner needs to be able to show that they manage the costs in your portfolio, so they can be as low as possible. History shows that on average, lower costs means better performance.

Finally, a financial planner will struggle to help you achieve your goals if they aren't continually kept up to date with any changes in your life. This is one of the most important jobs the financial planner’s clients has.

Peter Graham
BEc, MBA
PlannerWeb / AcctWeb