You need to have a financial plan before you think about financial products. SIMON PARFITT of Pyrmont Wealth Management explains why.
Plan before products
A big misconception about financial advisors is that people engage them for their exclusive access to the best financial products or their special ability to know which stock or investment will go up. That may have been how some advisors claimed to add value in the past. But the profession has come a long way since. When it comes to proper financial planning, the best professionals will not recommend financial products from the outset. Nor will they claim that they know where investment returns will come from in the future.
This article looks at the importance of having a financial plan in place before you even think consider financial products.
We notice with new clients that they often want to jump straight into the numbers, financials and solutions. But, if we don’t know what you’re setting out to achieve in life, focusing only on money lacks context. After all, your money is merely an enabler to do what you want to in life. A meaningful financial plan should – ironically – put your wealth to one side in the first instance: What does money mean to you? What are your plans? What’s your ideal lifestyle now and in the future?
A financial plan doesn’t mean financial products
When people hear “financial plan”, they may think this refers to an investment product. A financial plan isn’t a product. It’s a course of action that considers all your financial life areas based on your unique goals and objectives. It may help you answer questions such as, “What’s the most optimal way to buy property if I relocate?” “How can I structure my spending in the most tax-efficient manner?” and “Will I have enough money to retire when I want to?”
These questions can be answered with professional advice and a plan, without buying a new shiny investment.
Historically, financial advice was provided “free” on the basis that you buy a financial product from the firm. However, if the advice is “free”, you can expect the advice to be that you need to buy a financial product, even if it may not be appropriate for your needs.
A plan takes into account a range of possible outcomes
A good financial planner knows that the future (especially investment returns) is hard to predict. A financial plan should show you what life would look like under various outcomes. It should be set up to weather unexpected economic and life events so you still achieve what’s important to you. What if I stop working five years sooner than intended? What if there’s a recession during my retirement?
An investment strategy you can stick to
Whatever investment strategy you implement, it won’t be effective unless you can stick to it in the long term. This comes down to understanding the investment journey and managing your emotions.
A financial planner will help you with what can be controlled, such as managing risks through diversification, regularly rebalancing your portfolio and making costs as efficient as possible, while also helping you remain calm through the ups and downs of markets.
A plan is not set for life
Finally, a financial plan is not meant to be set in stone. It’s an evolving process that should be continually reviewed as your life changes. Pyrmont’s life-centred financial planning process aims to ensure your financial plan is resilient and flexible for the long term and that it helps you on your way to living the life you want to. Get in touch today to get started.
Simon is regulated by both the HK Insurance Authority (IA2898) and the Securities and Futures Commission (BGY807).
This article first appeared in the Spring 2021 issue of Expat Living magazine. Subscribe now so you never miss an issue.