Nirdev Desai – Head of Sales at PSG Wealth 

Great achievements do not happen by luck, nor do they happen in isolation. Whether it is gaining a well-respected tertiary education, a beautifully designed home, or successfully conquering K2 in the Himalayas, achieving most goals in life will likely require the services and support of skilled experts. In a world where knowledge and insight continually evolve, a do-it-yourself approach is not the smartest strategy. Financial planning is no different. 

Let me start by answering the question - is it worth it to pay for the services of a financial planner? The simple answer is yes. There is no doubt in our minds that financial planning offers incredible value, and I will use this article to unpack why. 

The purpose of a financial planner 

In its most distilled form, financial planning serves to help investors achieve their financial goals. While there are tried and trusted tools that can be used to achieve these goals, everyone is unique, and consequently, every financial plan should be too. A financial planner will consider an individual’s unique circumstances to ensure their financial plan is robust, executable, understood, and suitable for their specific goals.  

Using the services of a financial planner does not simply equate to buying a fund or an investment product. Rather, a financial planner will take your circumstances into account and then advise you on the most suitable approach to realising your goals. When selecting financial products, there may be a good reason why some products are more suitable for you than others, and it is the role of the financial planner to guide you on such matters when creating your financial plan. Your financial planner is also there to make the necessary changes to your plan over time to ensure it remains suitable to your needs as your circumstances change.  

Our relationship with money is a very emotional one. In a world of instant gratification, combined with newsfeeds warning of the next market sell-off, the best financial plans can be easily scuppered by fear and greed. A fundamental component of executing a financial plan is having a long-term lens when it comes to wealth creation, and short-termism can completely erode the best-laid plans. A good financial planner will help you manage your behaviour with money to mitigate these biases.  

The proof is in the research  

There are two well researched studies that prove the value of using a financial planner. The first (Dalbar: Quantitative Analysis of Investor Behavior: 2016) shows how investors’ behavioural biases cause them to collectively lose between 1 and 2% per annum in returns from their portfolios. While this may not seem like much, it equates to, a R1 million investment foregoing close to R1 million in returns over a 20-year period. An (extreme) example of investors having a knee-jerk reaction came at the beginning of the Covid-19 pandemic with the fastest sell-off of equities in history. Propelled by fear, some investors ran to cash at the worst time, which has since proven to have been catastrophic mistake. For those who did not succumb to the fear, a R1 million investment in an equity portfolio could be worth 52% more – see the example below.

Time Periods

• Period 1 = 1 January 2020 to 18 March 2020
• Period 2 = 19 March 2020 to 15 March 2021

Jason

• Period 1 = R1m invested in an equity fund
• Period 2 = Switched to cash

Tshepo

• Period 1 = R1m invested in an equity fund
• Period 2 = Remains in an equity fund

% return Jason Tshepo Difference Period 1 -32,05% -32,05% -  Period 2 4,89% 81,44% -  Total -28,73% 23,28% 52,02% 

R1m invested Jason Tshepo Difference Period 1 R     1 000 000   R     1 000 000  -  Period 2 R        679 452   R        679 452  -  Total R        712 671   R     1 232 825   R        520 154  

Source: PSG Wealth Multi-Management research team 

The second study is research from Morningstar that investigates whether a good financial planner can enhance the value of a portfolio, rather than just ensuring you do not lose money. In the study, they tried to determine whether financial planners add value over that which can be bought in the market. In essence, various financial assets are freely accessible to anyone, so by using a financial planner, does one get enhanced returns that outweigh the fees charged? In short, the additional returns that advised clients achieve was quantified as gamma – and this gamma value was estimated at around 3% per annum (half of which is attributable to behavioural coaching), more than the long-term outperformance of well-respected active asset managers.  

In summary, while there are many examples of successful investors who have not needed the services of a financial planner, there are many more that have used a financial planner and continue to do so as they reap additional value. Even though you can design and build a house by yourself without being an architect, you need to as whether you could benefit by leveraging off the expertise of a professional. Similarly, even with all the self-help financial planning content available, ask yourself whether it is worth putting the possible added value that can be derived from a skilled financial planner at risk, just so you can be a hobbyist.