How a Financial Advisor Adds Value

By Hamish McPhail, LL.B, GDipBus (Personal Financial Planning), CFPCM, Financial Adviser – Investments, Director of MFAS

As I begin this blog, first a spoiler alert that shameless self-promotion of the adviser follows. And what gall……in our world of endless free internet guidance, AI, promotions and offers of all sorts of cheap and good investment options, what on earth is the benefit of a professional adviser, who of course charges fees for service???

To make the case, I googled “value of professional advice”” and on the first page no fewer than 11 separate excerpts appeared from industry participants. Commentary varied from statements such as “90% of surveyed clients saying that accessing financial advice has left them in a better position”, to estimates of percentage gain for clients. Selecting just a few:

Financial Advice NZ 2023 investment research shows –

Australasian group Russell Investments concluded that the tools a good adviser adopts provided potential value above a do-it-yourself investor of 5.9% in the 2023 year that they profiled.

Listed USA investment group T Rowe Price estimate gains of 1.6% to 3% annually…….and so on.

The attributes a Good Adviser will bring to add value

Creation of a Plan – a written document that examines your objectives and estimates how to reach these. An invaluable benchmark from which to monitor and measure. It is the centre of discipline that allows a scientific rather than emotional approach to long term investment.

Diversification – not all investments will perform at the same rate, and therefore will deliver different outcomes at different times. Having a spread of investments through local and international markets encompassing defensive and growth assets is essential to mitigate risk.

Risk – most of us are brave when things are going well, and this certainly applies to investments. To panic and withdraw investments when returns are going south is normally the worst thing possible for successful long-term investment. However, we are human, and testing markets test everyone’s fortitude. After exploring risk with our clients (both market and emotional) the portfolio will be constructed accordingly which enhances confidence on all sides to ride out the downs and enjoy the upside which always follows.

Asset allocation – this matter has been left to last but is arguably the most important. Investments will grow at different rates meaning a diversified portfolio based upon agreed risk, will need to be modified from time to time (we recommend at least annually) to maintain its proper profile. This will ensure that you are maintaining a programme in sync with your plan and enhance the science of investment. Equally as you age, it is usual that the asset allocation reflects a quietly reducing emphasis on growth investments, to promote consistency of capital, as you get closer to needing this. For the retired, asset allocation is vitally essential to ensure reliable income is available, and for us this means holding 12 -18 months in Cash investments, topped up as required from the remaining assets, in such manner to enhance portfolio longevity.

The above attributes are not easy to self-manage at any time, let alone when asset bases get bigger as one gets older and arguably a little slower. To have an adviser stand alongside you on your long term journey is to engage knowledge, experience, empathy, understanding and a disciplined outcome not always enjoyed by those without.