The Financial Planner’s Dilemma

When I meet a prospective client one of the first areas to be discussed is what financial products they currently hold. While many people will know that they have a mortgage and its broad details, less will know about what their pension fund and investments are applied to and even fewer again will know what level of life assurance they hold. Most people usually do  not give time to, never mind arrange, either their Will or an Enduring Power of Attorney, two key personal legal issues especially if they have dependants. In fact, I know very few individuals that have everything properly organised both financially and legally.

In truth, most people put more energy and thought into planning their summer holidays than they do into protecting their own and their family's future. The protection that gets the most attention is that which is foisted upon people, namely motor insurance because it is a legal requirement as well as house insurance and mortgage protection cover because of their necessity to be in place before drawing down a mortgage.

Why is it then that most people are so complacent on these extremely important matters?

From experience I know it is usually because they assume that they have sufficient coverage of financial planning issues with existing products and presume because they have either or both a pension or investment product or even set up  life assurance that they have properly organised. In other cases, it is because they have never really bothered to educate themselves in financial matters and behave ostrich like ignoring the potential problems hoping that they will disappear.

When you analyse a new client's various financial products it  usually becomes apparent that they have accumulated such products through a succession of financial advisers, all usually consulted for a particular purpose only, be it investment, pension, mortgage or life assurance. The hotchpotch of financial product is a natural consequence of all of this. If you approach matters in a disjointed manner, you get a disjointed portfolio!

If you recognise yourself in this, what's the solution?

Firstly gather up all the data that you have on your personal affairs and make a list of personal spending, insurance cover, mortgages, pensions and investments. Lists are very powerful as they focus our attention, quite often, on matters that we have long forgotten about.  Check the last few months’ bank statements and credit cards and you will be surprised at how easily expenses accumulate. Most people use ATMs and the spending from the cash is usually the most difficult to pin down. This might mean that you will have to monitor expenses going forward for the next few months.

For investments, pensions and life assurance get a copy of the summary schedule or ask for the insurance company or the investment company to send you recently updated details.

Next, give some serious thought as to what is important to you and your family - now and in the future. Is it school or university fees, a second home in sunnier climes, paying down the mortgage, taking long term care of a disabled child or sibling, having a decent retirement fund or all of the above and more? This second exercise might take several weeks as many people rarely give sufficient thought to what their purpose in life is!

When all is done, approach a financial planner and ask them to analyse your portfolio of products in terms of liquidity, risk, debt, savings and solvency. These are key to not only understanding your current state of affairs but also how you can start to plan your financial future. A full list of Certified Financial Planners is available on www.fpsb.ie  

A financial planner should be able to analyse the key elements of your holdings and advise on the relative strength or weakness of your financial portfolio and how it is affecting your life now. Likewise the financial planner will also be able to identify the effects of current spending patterns and whether possible future needs might be met. These needs may involve anticipating future cashflows, tax computations and required rate of investment return.

Historically, very few advisers in Ireland have built this broad approach into their actual client interaction. This is because very few clients understand the need for such full root and branch reviews as they have been educated by the financial services industry to react to problems by buying financial product rather than anticipating them in a constructive manner and then identifying the optimal strategy.

The one good thing that has come from the demise of the Celtic Tiger is that there is now a realisation that there is no free lunch as well as the cause and effect of poor financial planning. Rather than look backwards, perhaps now is the time to look forward and start taking charge of your own financial future.

Today is a good day to start.