It is a brilliant time to be an investor, as the costs of trading in terms of expenses is cheaper than ever. Furthermore, investment strategies that were once only commercially feasible for large institutional funds, are now available to all investors via the likes of low-cost mutual funds.
The amateur investors now have more opportunity to be successful than ever before due to the volume of data available and the power of investment software which provides information to aid decision making.
How does this compare to financial advice? Despite the best efforts of the regulators such as the FCA, the availability and quality of financial advice has been somewhat lacking.
Indeed it is very difficult for consumers to truly understand how to invest and save for their future, which is of course unknown. One of the issues with financial advice is that it is typically provided directly by the institution selling the product, and therefore is effectively sales as opposed to neutral and unbiased advice.
There is a gap to be exploited in terms of providing macro level financial advice that helps the investor understand how the investment fits into their portfolio, and more broadly their life. For example, is the product short term, or long term and to be thought of as a pension.
Investment management and financial advice are both important but they should not be confused with each other. This is a quick run-down of the differences:
- How to allocate resources, the expected return, the investors risk tolerance, and the time frames of the investments.
- Building and managing a portfolio of investments and managing risk across the portfolio.
- Measurement of portfolio performance against industry benchmarks.
- Building a portfolio capable of riding out major market disruption.
- Create guidelines/rulebook which provides parameters to invest.
- Decisions linked directly to managing financial assets for life’s events. Examples are saving for retirement, managing tax efficiency, funding children’s schooling, estate planning, and so on.
- Financial planning including protection of the family and/or other beneficiaries.
- Measurement of success against personal goals and targets.
- Helping people make good decisions with respect to their money.
- Helps you to understand what you need to save to meet the future demands of your life.
So as you can see it is not a question of ‘either, or’ between investment management and financial advice. They are ineffective when provided in silos. Rather they must work together to be successful, and whilst software is currently primarily focused on investment management, I suspect the addition of financial advice won’t be far behind.
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