Working with a client to develop a financial plan requires a certain amount of looking into the future. There is no certainty about what th efuture will hold, so assumptions will need to be made. These assumptions may be about:
- the client’s situation (eg. health, income, dependants) and goals (retirement date, income needs)
- the economic environment, including tax, superannuation and social security
- investment returns
Together the client and the adviser will need to better understand the client’s attitude to investment risk as well as the unceretainty of future returns. Once a plan is put in place, it is imperative that the client participates in periodic reviews of the implemented financial plan so as to provide the opportunity to assess its progress and make changes where relevant.
Consider these changes that have affected many peoples established financial plans in recent years … who would have thought when compulsory superannuation was introduced in 1992 that now:
- super after age 60 is generally tax free
- reasonable benefit limits (RBLs) have been abolished
- assets test exempt income streams can no longer be commenced
- official interest rates would rise to 7.o% in February 2008 and fall to 3.25% a year later
- the exchange rate of the Australian dollar in terms of the US currency woul dbe 97.86c in July 2008 and then fall to 68.84c as at 20 March 2009
When a financial plan is reviewed and identifies deficiencies in client goal attainment … the plan may be revised to:
- meet the clients new situation or new goals
- take advantage of new opportunities or avoid threats presented through/by legislative change or adverse economic circumstances
- cater for a change in client’s attitude to investment risk.
The end of the long bull run in investment markets is an extreme example of a situation where assumptions made in a financial plan might not come to fruition (at least in the short term).
While the adviser may recomend a course of action involving various strategies and products, the client must make an informed decision to accept the recomendations and ‘own’ their financial plan. In the early rapport building stages, the adviser will generally know more about the legislation, products and possible strategies … whereas the client will know more about their own situation - their fears, goals and attitudes. Over time, the adviser will start to understand the clietn and will expect the client to have a better understanding of financial issues, strategies and products.
A client may say they understand share markets rise and fall in value. However, it is something different to see the value of their own investments rise and fall. This is real ‘in-your-face’ education. One of the Adviser’s roles is to ensure the client is coached through these ‘lessons’ and has a better understanding of financial returns from a long term perspective.
No one can really predict the future … current media headlines are almost universally negative, so it’s not surprising that absorbing these will probably add to downhearted feelings. Previous posts have commented on surrounding yourself with positive news and positive people … even when listening to the destruction caused by Victorian fires and North Queensland flooding there were still many positively inspirational messages provided by those people facing some relatively tough challenges. In uncertain times, most people look for signs that the future may be more predictable and certain … while no one knows the future, retaining a positive outlook and encouraging people to manage what they can control (look at things like Debt Management, cash flow, access to liquid assets and personal spending patterns) is an important message. Economies and markets are cyclical and we can expect them to self-correct over time with the help of government intervention and renewed consumer confidence … so c’mon Get Happy.
When the markets turn as volatile and confusing as they have been over the last year, even the most patient of people will begin to question the wisdom of the financial plan they have been following … we can certainly empathize with people who find the current environment troubling and disturbing … we’d like to help, if we can and to that end here’s what we offer:
A cup of coffee and a 2nd opinion
By appointment, you’re welcome to come in and sit with us for a while. We’ll ask you to outline your financial goals and your understanding of what your existing financial plan is intended to do for you. Then we’ll review your financial plan for and with you.
If we do not believe we can add value to your situation, we’ll gladly tell you so and send you on your way.
If, on the other hand, we think we are able to add value, we’ll explain how in plain English and, if you like, recommend alternative financial strategies to assist you to achieve your goals.
Either way the coffee is on us.
Where to from here?
