‘Buy this investment’, ‘compare your credit cards’, ‘establish these bank accounts’, ‘save your income’ and ‘review your interest rates’…. free financial advice? sounds familiar?
In this age of boundless information, we are witnessing a real effort amongst the general population to improve their financial knowledge. Television, print and social media are awash with information, ideas and advice on how you could be managing your financial affairs.
From a financial adviser’s perspective, it’s really pleasing to see more individuals take stock of their financial position, understand their options and make a concerted effort to improve their long term outlook.
Understanding your financial options and implementing changes to improve your financial position or achieve a financial goal, can be both enlightening and rewarding.
However, failing to consider your personal circumstances and following inappropriate advice can have dire consequences.
In the world of financial advice, there are 2 distinct types of advice that advisers may provide – general and personal advice.
There are many experts and market commentators who are making a living divulging general advice for their many followers.
However the very nature of ‘general’ advice means that individual particular circumstances (such as objectives, financial position and timeline) are not taken into account.
Consider the young couple who are saving to buy their first home in the next 12-18 months. Rather than continuing to diligently save cash towards their short-term goal, they have decided to ‘risk’ their money in the stock market following stock-picks in the weekend newspaper.
Fast forward 6 months, having underestimated the risk and volatility in the share market, their investments have dropped in value, they have no direction or risk management plan to manage their investment and their housing dream is on hold as they desperately seek to cover their losses.
A disciplined, diversified and long term investment in share markets may provide a positive return, however too often we are witnessing prospective clients who have indiscriminately followed “general advice” and ended up making financial decisions to their detriment. Failing to consider the risk, their investment time horizons and personal circumstances can result in considerable financial loss and stress.
Rather than following general advice, there are three different types of personal advice that a licensed financial adviser can provide:
Limited scope, single issue advice – addresses a particular issue or aspect of your financial position, for example the best way to manage your cashflow or contribute to superannuation.
Comprehensive financial advice – involves a holistic review of your current financial position and developing a plan to help achieve short, medium and long-term goals. This advice should not only consider multiple aspects of advice such as cashflow, superannuation, investments and insurance, but the interrelationship between these advice areas.
Ongoing advice and management – your adviser will regularly monitor and review your financial position and suggest changes to your recommended strategies and financial plan. Ongoing advice may also incorporate the management of your superannuation and investments to ensure your investments are closely aligned to the agreed mix.
Gathering general financial advice is a fantastic way to improve your financial knowledge however caution must be taken before applying these recommendations on the home front. Whilst it will come at a cost, the alternative is to consult a licensed financial adviser to help understand your financial position and provide personal financial advice on a limited, comprehensive or ongoing basis.
* The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.