The perils of free advice and a DIY approach

Free advice rarely works. Here’s why.

About ten years ago, I started open water swimming as part of my triathlon training. As I went on, I noticed I was struggling to improve.

To attempt to better myself, I remember buying books and watching YouTube videos to try to pick up tips on improving my technique. However, despite my research, I still wasn’t improving.

It wasn’t until I joined a club that I got an answer. The swim coach told me that my legs were sinking about five inches or so, and that this was creating drag. A simple head adjustment almost immediately corrected it, and suddenly it all felt a lot easier.

Clearly, I had a blind spot when it came to my technique. It took an objective expert with a complete view of my body position to make the improvement.

There is absolutely no way this could have happened without the one-to-one interaction. This was a real expert doing their thing; advice as the culmination of thousands of hours learning their craft.

Fast forward to now and I find myself in a similar position with my clients. Even the most savvy and intelligent investors sometimes have blind spots and can’t see things as objectively as an expert.

Online experts are not working for you

If you have money to invest, it’s never been easier to do it yourself. A cursory Google search will help you find share tips, and broadsheets such as the Telegraph even feature regular columns recommending shares to buy and sell.

If you then add in the resources available on YouTube, social media, and ‘expert’ blogs, there are more free resources than you could possibly ever access.

However, it’s worth remembering that:

• Journalists don’t know what the specific issues are that keep you up at night
• YouTube videos don’t care about you as an individual. They just want the hits and views
• Online experts don’t know your story, your hopes, fears, dreams, and ambitions. They also don’t know anything about your current circumstances or your future plans.

All these people are seeking hits, clicks, and reads. They aren’t paid by how well (or otherwise) you do.

It’s also worth remembering that we live in a world where all the information you could ever want is at your fingertips. So, without someone to filter out the noise, how do you know which bits are relevant for you, your situation, and your needs?

DIY vs professional advice

In recent months, UK do-it-yourself investment platforms have reported a surge in new accounts being opened by investors trying to manage their money themselves during the chaos caused by the coronavirus pandemic.

While it may be tempting to control the decisions yourself, it’s important to remember that ‘investing’ is not the same as ‘financial planning’. Financial planning takes a much more nuanced and holistic approach to your money, considering it in the wider context of what you want to achieve with your life, both now and in the future.

DIY investors can often:

• Fail to diversify, concentrating their investments in one company, sector, or geographical location
• Choose investments that are not aligned with their personal tolerance for risk
• Invest in ‘popular’ or ‘best buy’ funds which may not be appropriate for their long-term aims.

Take the example of the collapse of Neil Woodford’s multibillion-dollar Equity Income Fund, which had received investment from hundreds of thousands of DIY investors. Choosing a ‘best buy’ fund might look like a good idea on paper, but the Woodford scandal left 300,000 people stuck in the fund, many of whom may be trapped until the end of 2021.

A financial planner will be able to give you more rounded and bespoke advice. And, as they are an expert, they can manage your finances while you spend your time and efforts on the things that matter to you – your family, your business, and your career.

A few months ago, I saw a poster in a doctor’s waiting room that summed this up perfectly: “Don’t confuse your Google search with my medical degree.”

The value of financial planning

A couple of months ago, I published a guide on my website called Revealed: The value of financial advice. In it, I detailed both the tangible and intangible benefits of working with a financial planner.

For example, it is hard to manage your own money without emotional bias. Indeed, I’ve looked before at why it’s important to keep calm during periods of volatility, even though our brain might be screaming at us to do something. A financial planner can act as a sounding board, counselling you before you make decisions that could impact on your long-term plans.

And, in simple terms, financial planning adds monetary value. A 2019 report from the International Longevity Centre found people who received financial advice at two-time points (2006/08 and 2014/16) had nearly 50% higher pension wealth than those who were only advised once at the start.

Overall, it calculated that receiving professional financial advice between 2001 and 2006 resulted in a total boost to wealth (in pensions and financial assets) of £47,706 in 2014/16.

Get in touch

In the world of information, it is easy (as I did with my swimming) to fall into the trap of ‘price over value’. However, the advice of an expert – taking advantage of someone’s lifetime of learning – can be the difference between success and failure.

I’ll leave you with the words of the celebrated American firefighter Red Adair: “If you think hiring a professional is expensive, wait until you hire an amateur.”

If you’d like to review your financial arrangements or find out how financial planning could benefit you, please give me a call on 07769 156 250.

 

Foster Denovo Limited is authorised and regulated by the Financial Conduct Authority.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.