There are many misunderstandings, and to an extent, public mistrust around the financial services industry. Here, we dispel a few myths around financial planning…
“Financial Planning is about buying financial products”
There are many advisers out there whose focus will be on selling you a product, whether that is a pension, investment, or life insurance product. This is not true financial planning and can actually have a detrimental outcome, if the adviser has sold you a product without fully assessing your goals and needs.
In fact, financial planning is not about the product, and a good financial planner may not even sell you a product at the end of the advice process. Real financial planning is first and foremost about helping individuals and families understand what it is that’s really important to them, what they want to achieve in life – whether that’s spending less time at work, more time with their family, a trip of a lifetime, or what their retirement years might look like.
Having first established your life goals, a good financial planner will then work out what resources you have and what you need to accumulate to live the life you want and achieve those goals.
“Financial Planning is only for the wealthy”
Whilst it is true that people who seek financial planning tend to have accumulated wealth and have reached a stage where they feel they need guidance with that wealth, financial planning is not just for the uber wealthy.
People need planning to get to where they want to be, whatever their level of wealth. In fact, it could be argued that those with less wealth require more planning, as they need to figure out how to meet shortfalls and how to prioritise different objectives.
Just as it is not about the products, financial planning should not focus on the money. The money is simply a means to an end.
"Financial Planning is expensive”
Back in the day, people used to pay for financial advice via commission from financial products. The costs were unclear and people didn’t really know how much they were paying for the advice they were getting. There was a perception that financial advice was free, because the costs were not being properly disclosed.
Since 2012, financial regulations have banned commission from sales of financial products (with the exception of life insurance). Just like other professional services such as lawyers and accountants, financial planners now charge a fee for their service, which should be fully disclosed at the outset.
Good financial planning and advice will help you maximise the value from your life and finances. This is worth paying for.
“Young people don’t need any help with financial planning”
It’s true that younger people have lower salaries and fewer assets, however as already mentioned, financial planning is not about the money. Starting a financial plan early can help to establish good financial habits, decision making and provide a solid foundation to build upon. Younger people also have time on their side; any investments you make will have longer to grow, reducing the amount you need to invest in later life.
“Financial planning is a one-time thing”
Since your goals and circumstances naturally change over your lifetime, it makes sense that your financial plan should adapt and evolve to meet those changing objectives. Regular progress tracking is as important as building the initial financial plan. Financial planning is a carefully managed, ongoing process.
Financial Planning Analyst