There are many myths around financial advice - including who it's for, who uses it, and how much it costs. Fear & Greed is working with Vanguard to bust some of those myths.
Libby Newman - Investment Specialist, Strategy and Research with Vanguard Australia - talks to Sean Aylmer about the value of advice, and how to find a good advisor.
Vanguard is a supporter of this podcast. Vanguard Investments Australia Ltd and Vanguard Super Pty Ltd is the product issuer. Invest strong and steady with Vanguard. Visit vanguard.com.au for more information and to read the relevant PDS and TMD, and consider if a product is right for you before deciding.
Welcome to the Fear and Greed Business Interview. I'm sure and Alma. Fear and Greed is working with the team at Vanguard to bring you a series of episodes on investing, giving you the information you need to help make informed decisions. Today we're busting some of the myths around financial advice. Vanguard knows this space well, working with financial advisors around the world to provide them with research that can help their clients. Libby Newman is an investment specialist with Vanguard Australia, which is a great supporter of this podcast. Libby, Welcome to Fear and Greed.
Thanks Sean, thanks for having me.
Before we get to the myth set the scene for me. Financial advice covers a range of different services beyond what many assume is the default comprehensive advice. What does it financial advisor do for you?
Financial advice, Yeah, covers a range of different things. So it might be good to have an analogy and think of it a little bit in the same way that you might approach your health and fitness. Perhaps, so at one of the spectrum you might have something akin to a fitness tracker, So debt consolidation, you know, things like that that can really help you be aware of your spending needs. There's general advice that's around that can really give you some good information about specific products and so you know, a little bit a little bit more elevated. And then interfund advice is probably a little bit like you wouldn't go to your yoga teacher for information about a weight session, but you can go to your superfund and get some good advice around contribution strategies perhaps or about different options that might be within your superannuation fund. And then there's the full scale personal advice, which is probably a little bit akin to a personal trainer situation, so really tailored to your specific needs. You might have some injuries in a health situation, so you might have specific you know, income, outgoings, assets, liabilities in a financial sense, and then you might have some goals that you're looking that you're looking to aspire towards and a financial sense that might be getting a house, and in a fitness sense, it might be something like checking up Keilimanjaro.
So yeah, fantastic, I now understand what that's a very good analogy that one to me. We're going to bust some myths. Myth number one is financial advice for the wealthy only.
Yeah, that's that's a good question. A lot of the advisors that I work with quite closely, that is a lot of their business is around that that zone of probably people who are wealthy and maybe nearing retirement. But it's not necessarily the case that that's just that it's just for the wealthy. I think there's been some some interesting statistics. You know, even having those nudges or having that information quite early on in your life can make a significant difference to your financial outcome over the long term. I know in my son's situation, he's had those nudges into into his financial journey early on, and that's something that I probably wish that I had done earlier as well. So I think, you know, it's not just for the wealthy. And it might be that you have, you know, you engage a financial advisor, and it might be for one off situation and doing as your needs change over time, you might change that relationship. So it's not like it's a said and forget relationship, and it's not just something that's just for the wealthy. It's accessible to a lot more people.
So me number two, and you've sort of alluded to it here. It isn't just for someone like me. I'm much closer to retirement the name to the starting my working career. I think a lot more about it than I ever did when I was twenty five. But that may not be the best strategy.
Yeah, so I think, yeah, it's not just for the older folk. It's never too early to start your financial planning journey. There are a lot more advisors who are catering to people who are in that younger demographic. Notwithstanding that, there's probably a lot of people, you know, in maybe you and my zone, who are approaching retirement. They're thinking about a lot more closely. You know, a lot of advisers that I talk to are having conversations with the next generation. So we know that we're approaching a period when there's going to be a transfer of wealth. So there's a lot of advisors that are engaging that next generation, which are kids, but not really kids, they're adults. So you know, it's important just to get started. I think the feedback that we've had is that for most advisors, or for most people who enter an advice relationship, they wish they've done it earlier. So get started and get started earlier, I think is the takeout.
I'm talking to Libby Newman, investment specialist Vanguard and we will be back in the moment. Okay, Libby, let's go for myth number three, and this is a good one. It costs more than it's worth and that's something that has really been top of mind for people in the last ten years, particularly because of some of the regulatory changes that have come on board. Is it worth it?
Yeah, I think again it's important to consider it, not just if you're looking just at the check that you're cutting to your financial advisor. People often focus on that. It's really about thinking about it from a long term perspective. There was a research piece that was put out by the Financial Services Council in twenty twenty one which had to look at a number of different cameos and those people who had engaged a financial advisor had accumulated more than three times more assets over a fifteen year period than those who had not, And that is I was having a look at the paper behind that research this morning. That is a significant difference between those who had not engaged financial advisors to help with their decisions, and obviously the decision to do nothing is a decision in itself. So yeah, it really does make a significant difference.
Well, what about the emotional difference it makes, because anytime I've seen a financial advisor, I just feel better about it. I just think, well, I'm doing something about it, and I'm more confident about what I'm doing.
Yeah. Yeah, and I don't think you can underestimate that. I think that's another thing that we have a stream of researchers that looks at investor behavior and certainly those those intangible elements are really important elements of financial advice. And if you think about the I guess the sense of well being that you get knowing that you've got plan A covered, but you've also got planned B and plants C covered, because often the financial advice is not just about the shares that all the funds that you might have in your portfolio. It's all about protecting your assets and protecting those for the next generation. So a sense of wellbeing, you know, clearly flows through to your probably back to my health analogy earlier, probably flows back to your health and just a sense of well being and probably a better you know, hopefully a better family dynamic as well, sort of understanding what is going to go through the family. Haven't got all those things covered off, so.
Mi've done before. I've come across a few times in the last month. Believe it or not, people get in touch with me because of my job here on fear and greed and say, hey, have you got a financial advisor you can recommend? And I refuse to recommend a financializer to everyone because I don't know whether they're good or bad, and inevitably go to a peak body ask them. That's a good point what they inevitably say to me, my friends saying I've been to a couple, but they're just trying to sell me stuff. I just don't believe them. I just I think they're just looking after themselves. How do you mean is that a myth or is it the truth? No?
I think you know that a couple of years ago that was certainly a concern amongst the general population. I don't think that. I think importantly, you know, the first thing that you need to do is make sure that if you are looking to engage a financial advisor that they are licensed. I know that's a hygiene factor, but I have heard of a circumstance where someone did receive financial advice by someone who looks like they were a financial advisor, but they were not, and that's resulted in not great situation for that person. So you need to check that they are firstly a licensed financial advisor. There are I mean, I know you said friends and family might sort of hit you up for recommendations as well. There are other websites like advisor Ratings which provide some sort of testimonies as well. If you're really stuck for where to start. If you're in a particular industry, there are certainly financial advisors that might specialize in your particular industry. I know there's financial advisors that really specialize in working with doctors and those in the medical professions. And you know, at the end of the day, it's coming back to that pt analogy. You've got to make sure that there are a good fit with your goals and your I guess, your approach to life as well. There are a number of advisors out there who are really about, you know, focusing on your life and your lifestyle first and foremost, and less so about sort of plugging any particular product or forcing you down a particular path. I think that's more and more so I think we're seeing there's many more independent financial advisors around today with much fewer linkages to sort of vertically integrated situations.
This has been a difficult area for regulation for about a decade now, and we've had reform after reform. And where are we up to now, because I know there is some legislation that is scheduled to come in the next year or so. But what I'm wondering is is it going to be easier for people to get financial advice in a year or two or three or four.
Yeah, Well, there was some announcement from a government last week just I guess broadening out that avenue for advice to allow for a different type of advisor that it's able to give simplified advice. So I guess. You know, at Vanguard, REA really all about making advice as accessible as possible to as many people. I think that's in line with our mission to Dakistan for all investors and give the best chance of investment success. So we really would like to see anything that helps to break down those barriers to people being able to access financial advice, I think is a good thing. Obviously, you've got to have some over over sight in terms of managing those conflicts. I think we've the pendula has swung very far one way, and I think we're speaking back in toowards a more realistic realm where we're going to be able to make advice accessible to a lot more people, which I think is a great thing.
Absolutely, Libby, thank you for talking to Fear and Greed.
Thank you.
That was Libby Newman, Investment Specialist Strategy and Research with Vanguard, Australian invest Strong and Steady with Vanguard. Visit Vanguard dot com dot au for more information and to read the relevant pds and TMD and consider if a product is right for you before deciding. This is a Fear and Greed business interview. Join us every morning for the flurp so of Fear and Greed, daily business news for people who make their own decisions. I'm chanelma Enjoy your day.