A financial health check with a professional qualified to give advice is an investment in your future…

Nick Gornall, Head of Business Development at Wealth Management Specialists Arbuthnot Latham discusses the recent shift from advice to self-serve across the financial services sector due to the impact of technology and the arrival of new players in the fintech space disrupting the traditional houses.

Anyone who enjoys reading about politics or listens to leaders seeking election may raise a smile when they are given the definition of the Dunning-Kruger effect which is a cognitive bias that causes people to overestimate their knowledge or ability particularly in areas where they have no experience. 

While we should celebrate the broader access to financial education and the fact that information on global markets, tax and jurisdictional issues and wealth planning solutions is more available now than ever before, I’m wary about the implications this shift could have on long term financial plans.

Seeking and receiving good financial advice is something that we should be celebrating. Like mental and physical wellbeing, having a financial health check with a professional qualified to give advice is an investment in your future. 

The benefits can be enormous from saved tax, to ensuring your loved ones are financially secure, aligning your investment plans to your goals for the future and managing the level of volatility you want from financial assets. Creating a plan with a desired outcome can help you feel in control and confident for your – and your loved ones’ – financial future.

But despite these benefits, I come back to the subject of behavioural bias. It is a uniquely human foible that can cloud our judgement add a prejudice or insert an illogical preference – here are three biases that I have observed the most in over 35 years in the industry.

Status Quo syndrome; the inherent danger of doing nothing. The suggestion that the plans you have today will meet your needs in the future. Whilst a global pandemic might make you stop and think, leaving matters to another day means that you may miss opportunities – from maximising tax and pension allowances to IHT mitigation, or pre-structuring a business sale – having regular financial advice means that your financial plan can adapt to your changing circumstances. Having a plan also allows you to use multiple advisers and change advisers if you deem it right for you as the plan will capture your financial journey as you go.

The lack of inter-generational communication – there are many reasons that family wealth is often lost within just three generations. Some of them are external forces outside of our control like economic and financial market risk and for some political risk – but the real reason wealth succession often goes wrong is because of the lack of communication and trust between family members. We simply don’t talk enough and for many of the next generation we do not prepare them to inherit. Using an intermediary or an advocate means that decisions and advice get recorded and can be more easily shared – an impartial third party can also assist with cross family communication.

The IKEA effect – The tendency for people to place a disproportionately high value on objects that they partially assembled themselves, (such as furniture from IKEA) regardless of the quality of the end product. This is common in particular around the perceived value of property as an asset class – it is often much easier simply to stick to what you know. Using a financial adviser allows greater access to a means of diversifying which brings value by reducing the overall volatility of investment assets but also opens up potential to build trust and knowledge in a broader range of investments. 

So let’s celebrate the pace of change in the financial services sector the improvements in technology bringing cheaper easier access and a greater range of choice – but also do not forget that financial advice remains a vital part of the equation to help to maintain your family’s financial health despite there being behavioural biases that might prevent us from helping ourselves. 

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