Caption: Chief Investment Officer, Richard Hancock
In the course of my research as Chief Investment Officer at FMB I read a lot of financial press. A thought occurred to me recently, why do the media seem to be so hell bent on pushing people towards the cheapest product, cheapest fund and even the cheapest Financial Planner?
It got me thinking about other aspects of our lives and how we decide on our purchases. Looking into the car park I do not see many Dacia cars, so obviously when it comes to our cars we do not look for the cheapest. A quick look in the fridge shows very few “basics” products, so our food is rarely just “the cheapest”. In hardly any circumstances are we governed entirely by price. In fact, more often than not, we will go for what we consider to be the best we can afford.
Why then, when it comes to some of the most important decisions in our life: the types of decision that could well determine the level of income we can enjoy in retirement (now around one third of our life), how much we can leave our family when we are gone and even our standard of living right now, are we pressured into selecting the cheapest option? I could not think of any other item or service where cheapest was best. So why base the most important decisions in your life entirely on cost? I would bet that the journalists writing these articles don’t even choose their baked beans based purely on cost.
Every year BlackRock Investment Managers commission a survey of over 17,000 people across 12 countries to see what investors are thinking. The results are startling.
People spend more time planning this year’s holiday than they do on their investments and finances. More time researching their next phone than reviewing their retirement plans. Despite not wanting to think about how they are going to pay for it all, today’s generation of people approaching retirement are more keen than ever to enjoy an active lifestyle with frequent holidays, regular exercise and take up new hobbies. This generation will live longer than ever before and yet spend less time thinking about how they are going to afford it all, especially if their level of income is set at a flat rate for the rest of their life. All this evidence and we still spend more time researching our new toaster than our retirement plans.
The people already in retirement have some recommendations (again this is taken from the "UK Investor Pulse Survey” carried out by BlackRock). So what do the people already in retirement suggest?
- 73% said start saving as soon as possible
- 65% said save as much as you can
- 61% advised pay off your debts
- 57% said think long term
- 54% recommended a regular review your savings and investments
All of the evidence shows that people are increasingly short term in nature and are not reviewing their savings and investments. In fact, 63% said they did not know how much they needed to save for retirement, 41% are concerned they will outlive their money, 60% don’t think they will achieve the level of income they want in retirement but over 2/3 are not prepared to delay their retirement until they can afford it. Those in retirement are speaking from experience, they are experiencing first-hand the problems of not having saved enough, early enough and not thinking long term; we should pay attention to what we are being told.
Clearly there is a problem…
Professional Financial Planning is the answer; we can tell you how much you need to save, how long it will last and so on. You will have to make the decision to save more (and/or starting that saving sooner) but we can give you all the information you need to make these decisions, you don’t need to be one of the 63% who has no clue as to how much they need to save.
I suppose given these statistics, it comes as no shock that those who take financial planning seriously have a far more confident and positive outlook on their financial future and feel far more in control of their own destiny.
One final point covered was people’s sources for financial advice.
- 53% own ideas and thoughts
- 28% family and friends
- 27% websites
- 25% papers and magazines
- 21% bank advisers (even after all the recent press)
- 19% professional financial advisers
This was staggering, again, compare this to other aspects of your life, if you had to rewire your house, would you ask your mates or would you ask an electrician? Repairing your car, is a website really better than a mechanic? Financial advice can be such a complicated and changing environment, it can often seem counter-intuitive and needs to be constantly reviewed why would you do anything other than ask a professional? The fact that more people would take financial advice from their friends down the pub than a professional adviser amazes me especially when all the evidence shows that most people don’t know much about their own finances never mind other peoples.
The other surprise for me was that 21% of people were still prepared to take advice from a “bank adviser” rather than 19% from a “professional financial adviser”. If you go into a Ford dealership, are the salesmen likely to tell you if another brand of car is better? Would they tell you how good the latest Audi is or would they try and sell you the Ford that has the biggest profit margin on it? I don’t need to finish off this analogy, I am sure you can fill in the blanks yourself.
The only way to get a unbiased AND fully independent view is to pay an “independent” financial planner, one who is paid for the work they do, not the products they sell. I am sure if you asked people, they know this intuitively and yet the evidence suggests people do not act in this way. Is it because people are irrational? Probably not, firstly, it is easy to listen to the bank, you are in there already and people are actively approaching you; you do not have to do the legwork to find a good professional adviser. Secondly, compared to doing nothing, it still seems like a good idea, even if it is not the best idea or the best product, it is still better than nothing? Or is it? Who knows?
As with all things in life, more often than not, you get what you pay for. Act rationally, do the research, buy the best, especially when it comes to your financial security, don’t just spend your time researching your next dishwasher.