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Laying the foundation for good advice

In order to remain relevant to clients, advisers must add value beyond traditional financial planning and insurance. Jason Andrew shares how he’s keeping the client conversation focused on what’s really important, and it’s not markets and performance. Many people believe their biggest financial asset is their home followed by their superannuation. Others believe it’s their ability to earn an income. But here’s another thought: it may also be one’s ability to save. That would explain how some low-income couples are able to retire with considerable wealth while other high income earners have almost nothing to show for their years of hard work. According to a report by the National Bureau of Economic Research in the United States, the major determinant of long-term wealth creation is one’s ability to save, budget and manage their cashflow. The NBER Choice, Chance and Wealth Dispersion at Retirement Report found income only explained 5 per cent of wealth dispersion while investment choices only explained 7 per cent. Chance events, such as an unexpected inheritance, accounted for 4 per cent of wealth dispersion. The report concluded that people who made it a priority to save were able to accumulate significant wealth, regardless of their income, personal circumstances and investment choices. It’s an empowering thought that almost everyone can do something to improve their financial position. However, traditional financial planning processes devote relatively little time and attention to helping people with budgeting and cashflow management compared to insurance and investment choices. Many advisers have been guilty of approaching budgeting, saving and cashflow management half-heartedly. They’ve allowed clients to get away with providing rough data and guestimates on their spending and total income, making it impossible for advisers to accurately determine a client’s true financial position, how much income they need now and how much they’ll need to save and invest to achieve their goals. In the past, advisers could’ve been forgiven for focusing on insurance and investments. There was an abundance of sophisticated insurance and investments calculators, software and platforms but a shortage of adviser-friendly budgeting and cashflow management tools. That’s not the case anymore. Advisers can now easily and cheaply access powerful, cloud-based money management and budgeting tools like Moneysoft, which aggregates a client’s financial information to provide a complete picture of their finances in one single, easy-to-use location. While a budgeting tool on its own can only collate information and give clients the ability to see what’s coming in and going out every month, when it’s combined with professional advice it becomes an invaluable, powerful way for advisers to gain insight into a person’s priorities, goals and their capacity to save and invest. Armed with the hard facts, an adviser can determine a client’s current position and develop a sound, holistic financial strategy which will maximise the probability of them achieving their goals and objectives. They can educate clients about the long-term impact of their financial decisions; help them positively change their financial attitudes and habits; monitor their progress towards their goals; and keep them accountable for their decisions. Every investor knows the importance of saving, budgeting and cashflow management. That common sense along with professional advice and technology that has the ability to visually show investors the impact of different scenarios, such as buying a new car, saving a little extra or working for another few years, can help clients achieve more with their money. Advisers who adopt and integrate a new cloud-based budgeting tool into their advice processes will find that client conversations change dramatically. Conversations won’t be dominated by questions around the performance of equity markets or investment portfolios. They’ll shift to focus on what’s important to clients, and that’s how they’re tracking towards their goals. It’s a meaningful and sustainable relationship and it moves the adviser’s value into areas that they can control. This article was written by Jason Andrew, director and adviser at Empowered Financial Partners.  

Jason Andrew is an Authorised Representative of RI Advice Group Pty Ltd AFSL 238429 ABN 23 001 774 125

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