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Why simplicity beats complexity when it comes to planning your financial future

During my time as an adviser, I’ve noticed a regrettable tendency for financial issues to be overcomplicated.

Articles in the national and trade press seem to take great delight in using the type of baffling language only properly understood by financial professionals.

To my mind, simplicity always beats complexity when it comes to most aspects of financial planning.

Complex explanations are usually unnecessary

One key issue is that many in the industry try to overcomplicate and create complexity where it isn’t needed.

This is particularly the case in the investment sector, but it can also be prevalent when it comes to taxation and pension arrangements. More often than not it will simply lead to people like yourself being confused, and unhappy about the advice you’ve been given.

It may even result in some people choosing not to seek advice at all.

Whenever I read complex explanations about a topic that, on the face of it, is relatively straightforward, I’m often reminded of the global financial crisis of 2007/08.

In the aftermath, when the dust had settled and commentators started to look at the causes, it became clear that the crisis was caused, in part, by US regulators not understanding what many investment analysts were doing.

Let’s face it: if an experienced regulator isn’t quite sure what is being sold to unsuspecting clients, what chance would you, as the humble consumer, have?

Some solutions can be complex, but I often think a decent guide is that, if it can’t be explained in terms that you would understand, maybe it shouldn’t be done.

That’s not to say that some aspects of financial advice aren’t complicated. Just that it’s essential that you understand how something is going to work and how it could affect you.

My job is to make the complex very simple

One suspicion I know that many of you may have is that a complicated explanation can often be used as a smokescreen and justification for the fees or investment charges you incur.

If you were to challenge me on that, I’d say my fee is for the thousands of hours of study, research, and analysis I’ve gone through to ensure that the advice I’m giving you is the most appropriate for your immediate needs and future plans.

In most cases, the outcome of my analysis and reading is that it’s the simplest solution that will work best for you.

Of course, there are complications. Everyone’s financial affairs are different, and retirement and tax planning can occasionally become riddled with complexity.

For example, there’s a sense that HMRC do seem to like to complicate issues that can and should be straightforward. Likewise, investment professionals can often hide a simple explanation behind jargon and investment-speak.

But as a general rule, simplicity can produce better outcomes.

Financial advice should be easily explainable

As you’ve already read here, the best advice is often the advice that’s easiest to explain.

At meetings or in client reports, my guiding principle is that I should be able to explain concepts and my recommendations for your financial planning arrangements in terms that you don’t need qualifications in applied mathematics or tax to understand.

Yes, some of what goes on may well be complicated – but should always be able to boil down to a simple explanation.

So, I’ll ensure everything you read will be in clear English. Charts and tables – particularly in the cashflow modelling reports presented at your annual reviews – will be easily understood and designed to illustrate circumstances and future events in graphic form.

But the simple things can sometimes be the hardest thing to do

One problem with keeping things simple is that sometimes it can be the hardest thing to do.

Take investing your money for example. At times of stress, such as a sudden market fall, our natural instinct is to look for a solution, such as taking some kind of remedial action designed to reverse the affect of what’s caused the stress.

In investment terms, the perceived remedial action will often be to sell – and so reduce any future losses – or to change your investment portfolio.

In fact, the best advice is usually for you to do nothing. A phrase I like is “don’t just do something, stand there!” It’s nearly always the best solution. Consider that the expression “doing nothing” contains the active word “doing” – so it’s a conscious decision!

Successful investing is about avoiding mistakes and sticking with it through all market cycles. This advice is incredibly simple but unfortunately incredibly hard for many people to follow.

Establish your strategy on day one, and stick to it

The secret to successful financial planning is to set out your plans clearly at outset and then only ever tinker with them as your goals or plans change.

You’ll have annual reviews as you go through your financial journey. During these, I may well talk to you about tweaks to your plan, or more detailed changes if your circumstances change dramatically – such as if you’re thinking of starting a new business or are looking to retire early.

By avoiding complexity and keeping things simple, you’ll give yourself the best possible chance of a secure financial future.

Get in touch

If you want to talk about any of the issues you’ve read about in this article, please get in touch.

You can call me on 07769 156 250.

Please note

The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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

The Financial Conduct Authority does not regulate school fees planning, taxation & Trust advice and Will writing.