Personal Financial Planning In 2020
MBA, BSc, DipFP
Financial Planner / Managing Partner
Changes to Personal Financial Planning In 2020 You Should Be Aware Of
The current situation in the Australian personal financial planning and financial market, could only be described as a Black Swan Event. That is, something that happens even though it seems impossible.
The pressures put on the economy by Covid are at once creating volatility in the market, increasing investor reliance on growth assets due to low interest rates, and increasing demand for advice due to financial distress.
At the same time, financial advisers are leaving the industry at an alarming rate. This will have an enormous impact on the availability, type and cost of advice for all Australians.
So what do investors need to do to not only survive this Black Swan Event, but to thrive, with their financial futures intact?
Volatility and Risk
The economic stresses brought about by Covid have created a volatility in the market. Whilst this presents opportunities, it also carries with it risk for investors.
During these turbulent times there are a few key points to keep in mind:
- When the market is volatile it is more important than ever to make sure you are getting sound advice from an experienced and unbiased adviser.
- Keeping a close eye on your asset allocation is important. Don’t be tempted to throw your strategy out the window, as some apparently good opportunities may in fact be riskier than they seem, especially when prices don’t always reflect the underlying value of the asset.
- If you are thinking of restructuring, it should always be done with a view to improving the real, after tax return without increasing risk as the decision making model.
- If you are thinking of restructuring, check out our article on Modern Portfolio Theory and The Efficient Frontier for a little insight.
The government has released a number of stimulus packages. If you have benefited from one of these packages, it is important to make sure you use any extra cash wisely.
If you are considering taking money from you Superannuation you should seek advice on whether this is the right move for your circumstances. It may seem like a good idea, but it will have long term consequences and there may be a better way to manage your expenses in the short term.
Financial Adviser Exodus
The release of the Financial Services Royal Commission Report in February 2019 created a new paradigm for Financial Advisers[i].
Education and compliance requirements were significantly increased, and this resulted in many advisers deciding to leave the business. This, coupled with the pulling back of the major players, like the Big 4 Banks and AMP, has meant that adviser numbers are estimated to drop by as much as 21% over 2020[ii].
Of course, this is a double-edged sword. Whilst there are fewer advisers in the marketplace, those who remain are subject more stringent compliance and education requirements, so you can be more confident that you are getting unbiased, well planned, thorough advice that is tailored to your needs.
The New Normal
With fewer advisers in the market, it is anticipated that the cost of advice will increase, and some advisers will be looking to concentrate on high value clients.
New approaches to giving advice for clients with less to invest, or less complicated needs are being developed by many advisers. This might include automated online advice, robo-advice and reducing compliance requirements around initial scalable advice[iii].
Only time will tell how well these types of advice serve the needs of smaller investors, and you should have a frank and open discussion about this with your adviser.
If you need advice on how best to manage your financial situation in these uncertain times, please contact us on 02 9976 3388 or click below and we’ll be in touch.Interested in knowing more?