In this 3-part blog series on financial advice, we look at the why it is hard to differentiate value between financial advisers, the limitations of company aligned advisers and whether you should go direct or not. This is part 1 of the series.
For most people, it can be hard to identify the different value between financial products and services.
I think most of us find it difficult because most daily purchase decisions involve products (TV, home/ contents insurance, health insurance, new car, new home etc). In these situations, we make our decision based on brand, cost, online reviews, reading the product brochures and possibly doing some research. We take all these things into account and make a decision to purchase that product. Financial advice from an adviser is no different.
Purchasing a financial advice service or product on the other hand can be far more difficult to evaluate, mainly because you often don’t have a physical product to look at or the benefits and services being provided may not provide an immediate benefit, and in fact may cost even more money.
Life Insurance is a good example of this. We apply now, start paying premiums for a product we don’t get to use now and in our mind (remember we don’t think anything will happen to us until we are old) we won’t get a benefit for years, and maybe never if we don’t make a claim.
For many of us we find it difficult to put a value on peace of mind, which is what insurance offers.
The same difficulty occurs when picking picking financial advice from a financial adviser. How do you evaluate the effectiveness of the service delivered to you by a financial adviser, today? You might have a good idea in 5 or 10 years’ time whether the advice was right for you – but how do you know today?
Yes, an adviser can find a cheaper insurance premium, get a better interest rate or save some tax – but what about long term planning, like ensuring you have sufficient super to pay for your retirement – you won’t know until you retire.
Because great advice can be hard to identify, people often choose an adviser, or a financial services product, based on the short-term information of price. The rationale is that without knowing why one should pay more for a particular financial adviser, many will opt for the cheapest – but this can be dangerous.
Lower priced planners generally have limitations of on the types of advice they can offer or the brand of products they can recommend. They may have to sell a particular number of financial products to meet sales quotas or they may have a vested interest in ensuring you do not move your money from the administration of their employer.
This means that while you are getting financial advice, you are not getting the financial advice that is right for you, individually.
In the following post we look at the limitations of company aligned advisers and how this can impact the financial advice you receive.