Investors today have more choice than ever before. There is a constant stream of new funds and investment products competing for attention, often accompanied by impressive recent performance or a compelling marketing story.
On the surface, this may appear to be beneficial. More innovation, more competition and more choice should be good for investors. However, when it comes to managing wealth, more options do not necessarily lead to better outcomes. In fact, one of the biggest mistakes investors can make is assuming that the starting point should be finding the right product.
The product is not the plan.
The difference between a product-led approach and an advice-led approach might seem somewhat superficial, but it is incredibly important. A product-led approach focuses on a very narrow subset of what wealth management and financial planning can achieve. It is centred almost entirely on the product itself. The conversation becomes, “I would like to invest in this specific product, please help me facilitate the transaction.”
An advice-led approach starts somewhere completely different. Before moving into solutions mode, it asks a far more important set of questions: Where are you today? Where would you like to go? What are you trying to achieve? What sort of solution do you need to get from point A to point B in the most efficient manner possible?
It may also be that the solution differs from what you had in mind initially and that an alternative approach could be more beneficial to you. It is a far more comprehensive and holistic discussion, where the value extends well beyond what can be derived from a product alone.
This matters because not all products are suitable for every investor. A specific product is not necessarily a bad product; it may simply not be suitable for your specific needs.
Typical marketing does not provide that context. A product banner at an airport, for example, does not come with questions about your financial position, your estate, your long-term goals, or your personal circumstances. More often than not, the focus is on returns, with no mention of the potential downsides.
There is also a risk of analysis paralysis. With so many options to consider, people can become overwhelmed, postpone decisions and become inactive. Yet once you have set your goals and know what strategy you need to adopt, you have created a framework for yourself.
This is where advice becomes particularly valuable and there is research to substantiate this. Studies by firms such as Vanguard and Morningstar have attempted to quantify how wealth managers add value. Interestingly, the product-selection component, whether fund selection or stock selection, represents a relatively small portion of that value.
The majority of the benefit comes from taking a holistic view of a client’s financial affairs. It involves ensuring portfolios are structured appropriately, taxes are managed efficiently, savings incentives are utilised effectively, and estates are properly considered. It also includes something that is difficult to measure but immensely valuable: helping investors avoid costly mistakes.
When markets sell off, volatility invites mistakes. Having someone by your side who understands your real needs and can remind you why those products are in your portfolio and why you should see through the noise can be extremely valuable.
Ultimately, financial advice is not about facilitating transactions. Investors can increasingly do that themselves. The real value lies in helping people make better decisions, align their wealth with their goals and stay on course over time.
Written by Adriaan Pask, Chief Investment Officer at PSG Wealth