Having a financial plan in place makes it a lot easier to make decisions about your wealth, fine-tune your investment strategy and stay on track to meet goals.
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If you're not sure what's involved, a financial plan calls for four steps: Knowing how much you earn, determining your outgoings, thinking about future goals, and writing up a budget that allows for different investment options. Fortunately, plenty of Australians can do most of this work themselves.
The internet makes it cheap and easy to invest, with plenty of low cost exchange traded funds that offer transparency and simplicity.
However, if you need help with some areas of your financial situation, a financial planner could be the person to see.
If you've done most of the hard work on your financial plan, your adviser can focus on more sophisticated strategies to grow and protect your wealth.
The key is to be understand what you'll pay.
Advisers may charge a flat fee or a percentage of your investments - generally 1-2 per cent of the value of your portfolio.
The problem is that if you expect your portfolio to increase by 6 per cent a year but you're paying an advice fee of 2 per cent, the adviser is effectively taking one-third of your portfolio's annual increase.
This dramatically raises the cost of advice while diminishing the benefit of compounding returns.
Research by InvestSMART in 2019 found that along with the direct cost of advice, you could also pay platform fees (that allow you or your adviser to buy, sell and manage your investments), plus product fees and administrative costs.
The key take-out is that advice can be helpful but fees matter.
Don't be seduced into thinking that the more you pay, the better your portfolio will perform.
