I recently listened to this podcast hosted by James Kirby where he interviewed his guest about the increasing cost of financial advice. Many financial advisors’ ongoing fees start at $5,000 per year. Due to a shortage of advisors in Australia, most advisors now focus on ongoing client relationships and do not offer once-off or occasional advice. Of course, not everyone needs ongoing advice, which is problematic.
This trend leaves more Australians needing to navigate their financial decisions independently, and that is one of the main reasons I write this blog.
Before considering hiring a financial advisor, there are several important things you can do and ask before you are ready to engage in ongoing financial advice.
(1) Know what you are spending
Many people approach us for financial advice without a solid grasp of their cash flow. If you don’t have surplus cash flow to invest, it limits what a financial adviser can do for you, and in turn, reduces the value we can add.
Occasionally, clients come to us seeking help with cash flow management. In my experience, this is not only unnecessary but can also signal a misunderstanding. Managing cash flow is ultimately your responsibility. A financial adviser can suggest systems to help, but at the end of the day, your spending decisions are up to you. Hiring an adviser doesn’t magically fix this problem – just like seeing a dietitian won’t improve your diet unless you put in the work.
It’s rarely worth paying $5,000 per year (or more) to a financial adviser just to help with cash flow management, especially given the many free tools available. Most bank apps now let you categorise your expenses, making it easier to track spending.
I’ve previously recommended a couple of cash flow management systems that have been very effective for my clients. There are two main approaches:
1. Each month, categorise all expenses into 5–10 key categories, as I explain here.
2. Use two separate bank accounts to pay for discretionary and non-discretionary expenses, as outlined here.
Before engaging a financial adviser, it’s a good idea to get your cash flow management in order.
(2) Educate yourself about key concepts
If you’re reading this blog, you’re already on the right track – well done!
Financial literacy is incredibly valuable. It helps you make smarter decisions, avoid costly mistakes, boost your confidence, and ultimately achieve financial security.
You don’t need to become an expert, just have a good grasp of key concepts, such as:
- Superannuation: Maximising investment returns and minimising fees in super is simple and has a huge compounding effect on your balance over time.
- Borrowing to Invest: When done carefully, leveraging debt to invest can be a highly effective wealth-building strategy, especially if you have a low asset base.
- Property vs Shares: Don’t get stuck on whether property or shares are better. Instead, think about gearing. If you’re comfortable with borrowing, property is probably the best way to go. If not, stick with shares.
- Investing in Shares: With diversified ETFs, share market investing has become easy, low-cost, and grounded in evidence-based strategies.
- Investing in Property: The power of compounding capital growth is the key to wealth. Invest in property with strong fundamentals that are likely to drive above-average capital growth over the next 2 to 3 decades.
- Pay Yourself First: Prioritise investing before spending. Whether it’s funding property costs or regularly investing in the share market, investing a given amount, consistently for years is the most powerful wealth strategy.
Once you understand these key concepts, you’ll be better equipped to make smart financial decisions and build lasting wealth. This includes knowing when and if you need to seek help from a financial advisor.
(3) Consider if your next move is obvious
The value of having a long-term strategic plan is that it gives you a clear framework for making financial decisions today that will set you up for a comfortable retirement in the future. However, if your next financial move is obvious, there’s no need to pay for a detailed strategic plan. In such cases, you might only need execution advice, not strategic financial planning.
Let me explain with an example. Say I meet a couple with a young family who already own their long-term home, have little wealth outside of it (just low super balances), and have the surplus cash flow available to invest. In this situation, it’s clear that investing in property is likely their best next move. With retirement still decades away, they need to build their asset base and leveraging into an asset that delivers most of its return through compounding capital growth, is the most efficient way to build wealth over the long term. So, what’s the point of them paying me to create a financial plan when the next step is already obvious? In this scenario, they don’t need strategic advice – they need an experienced mortgage broker and a trustworthy buyer’s agent to help them execute this next investment.
Therefore, my advice is to consider whether, based on your life stage and financial situation, your next move is clear. I’ve written blogs about the typical investor life cycle that can give you more context here and here. But here are a few general suggestions:
- If you have minimal investment assets and extra cash flow, borrowing to invest in property is likely your best next move.
- If you don’t own your forever home yet, buy it as soon as possible, even if you rent it out initially to make it more affordable to hold.
- If you already own your forever home and have invested in property, consider diversifying into shares – either through making additional super contributions, or investing in a diversified ETF outside of super, or both.
Of course, if you have significant investable funds or if your next move isn’t obvious, that’s when it’s probably worthwhile getting a strategic long-term financial plan.
(4) Get your house in order first
Before engaging a financial advisor, it’s worth ensuring you have your financial house in order. This could include getting on top of your tax obligations, building a cash savings buffer of at least six months’ living expenses, selling off underperforming/poor quality investments, consolidating your super, improving your banking structure, and so forth. Take a moment to think if there are any of these issues you need to tackle first.
Pick the low-hanging fruit
By taking proactive steps to improve your financial situation while delaying the need to pay for ongoing financial advice, you’ll be in a stronger position.
However, financial mistakes can be expensive, and not everyone has the skills or confidence to make financial decisions independently. So, this approach may not be suitable for everyone, but it’s worth considering.
