The right times for financial advice
The COVID-19 pandemic has created uncertainty everywhere, and that has also extended to the world of finance.
Sharemarkets went into meltdown around the world in March as the pandemic struck, and then rebounded.
Some market sectors, such as online shopping and e-commerce, surged while other sectors, such as airlines, traditional retail, and tourism, plummeted and have yet to come back.
Dividends on bank stocks, once a sure thing, have been slashed and with interest rates at record lows savings are going unrewarded if they are simply resting in a deposit account.
For many investors, particularly those who are retired or are about to retire, the volatility has undermined their confidence. Not only in their investments, but in their hopes for a comfortable retirement.
Amidst this uncertainty, many people have found their financial advisers to be critical sources of advice and a valuable sounding board.
In many cases, the advice relationship has been a long-term connection over many years which built trust and confidence that the adviser has the client’s best interest, and that of their family, at the centre of every decision.
Anecdotally, the advice industry is full of examples of clients reaching out to their advisers in recent months, leveraging these long-term relationships at a time of worry and crisis.
Advisers are also fielding an unprecedented number of calls from potential new clients who are confused by the current markets and understand they are in need of help.
For clients with long term relationships with advisers, they are now reaping the benefits of that long association.
Their advisers know them well, know their particular circumstances and are able to deliver advice based on a holistic understanding of the point the client is at in their life.
This encompasses a whole suite of investment options, and a complete view of the client including superannuation, mortgages, tax planning and also insurances, which have been a particular focus during the pandemic.
Life insurance has resurfaced as a priority for many clients, as has income protection insurance, but many people find it confusing to navigate a way through the market and fully understand which are the right policies for them.
Advisers, and particularly those with a holistic understanding of their clients, have been able to guide many people through what has been a stressful period.
It is not only retirees and pre-retirees, of course, who benefit from longstanding relationships with advisers, and their advice is just as relevant in more normal times as it is in through extraordinary periods like the present.
Advisers understand that people go through life stages and each stage requires a set of different financial priorities.
Even young people beginning their careers and just out of university might benefit from advice.
It is likely that they will have worked a variety of different casual jobs to support themselves while studying, with the result that they may have a number of different superannuation accounts, all chosen as default choices by different employers.
It can be worth considering consolidating all of these accounts into on, and using that as the main retirement savings vehicle going forward. However, it’s important to understand the insurances attached to each one when deciding which superfund to consolidate into.
Then there is the minefield of budgeting, saving if they can and dealing with unwanted and accumulated debt, often from high interest credit cards which might better be managed with a lower interest loan.
During the current crisis, more than half a million young Australians under 35 have cleaned out their entire superannuation accounts under the Government’s access to super rules.
Many will have been desperately in need of these funds, with no options, but others may have chosen differently if they had access to advice.
Advisers can help with practical advice in all of these scenarios, but even more importantly an early relationship with an adviser can help a young person focus on their financial priorities and goals and create a plan to achieve them.
Life’s next stage is typically when people find partners and think about getting into the property market as a precursor to raising a family.
For first time homebuyers, preparing financial evidence and finding the right mortgage provider can also be confusing because not all home loans are the same, both in terms of interest rates and features.
A financial adviser can not only remove stress from this process but can guide young homebuyers through the mortgage maze to their best advantage, setting them up for the next phase of their lives.
The arrival of children brings a new set of financial priorities.
Should you save for their education, and if so what is the right investment structure to choose? Should the mortgage or salary sacrifice to superannuation be a priority?
What about a self-managed superannuation fund? And this is also a time when people start to think about estate planning and making sure everything is properly prepared in the event of their passing.
All this is before the pre-retirement period, when ideally people will want to be contemplating a comfortable retirement funded by the right financial decisions they have made along the way.
And once in retirement, as the Covid-19 disruptions has shown, there is an ongoing need for advice to navigate unforeseen circumstances and market volatility.
During the market slump in March this year, many investors – older people among them – ran for the exits and sold down their portfolios in a panic.
The reality is that they would have been better advised to keep their nerve and stay in the market, which rebounded rapidly soon after. For anyone who sold, buying back in would have been an expensive experience.
We asked AMP financial adviser John Dani how he has helped his clients during this time. “The sharp market downturn early this year, along with the constant doomsday media coverage, created stress for many of my clients. An important role as their adviser is to provide my clients with non-sensational information and understanding of the impact for them personally. This has provided them courage to not panic and instead maintain a long-term view of their investments. As markets have gradually recovered my clients have been grateful for not cashing out in panic.”
Life’s journey has a number of twists and turns and points at which priorities change. For many people, it is a journey best navigated not only with partners, family and friends, but with a trusted financial adviser by their side.
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