Posts Tagged ‘financial advisor’

A Partnership for Life: transparency and your financial advisor

“There’s no single professional that’s right for all clients.” ~ Gerri Walsh, vice-president for investor education, Financial Industry Regulatory Authority (Finra).

Service is generally about politeness, competency and going the extra mile to help a customer. But the service provided by your financial advisor is a different story altogether – because here you are looking at the very epitome of trust, the basis of a partnership for life.

And therefore it should be a relationship that is open, honest, forthright and enduring. In fact, a friendship. And the key to this, is transparency.

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The Real Value of Advice

In the investment world, where results are measured in percentage terms, it is very easy to lose track of the real value of advice. Of all the participants in the ‘investment value chain’, historically it has been the financial adviser who has most keenly felt the pressure to reduce their fees. Being people centric at heart, quite often they oblige. As it turns out, quite unfairly, as we will explain below.

Consider the illustration showing investor returns:

ComparisonReturn % per annum
Stock market (eg JSE, S&P, Dow Jones)10.0%
Managed Equity Fund (a fund manager)12.0%
Excess Investor Return (Difference between stock market and the Fund2.0%
     Less: fund manager fees (cost of accessing the fund)1.25%
Net return received10.75%
 

At a glance this shows the investor receiving a net 10.75% return from the fund manager for a fee of 1.25%. Seemingly a good deal.

Take then a financial advice fee of 0.75% p.a over and above the fund manager’s fee, and we are back to square one: the stock market return of 10.00%. Many investors do this simple comparison and start to question the value of advice, with the fund manager receiving substantially more gratitude for the returns delivered.

The reality could not be more different. This comparison, while simple, illustrates how the value of advice can get lost in the numbers.

Here’s why…
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Securing your long-term financial future: Time in the market is more important that timing in the market.

Madelein is an ambitious 22-year old who just finished her studies. She knows that she won’t be able to start investing right away as starting salaries are quite small. Nonetheless, she would like to know more about investments – what type of funds are available, and which one to choose to suit her needs.

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