A Million Dollars Better Off
You could be more than a million dollars better off at 65 if you’ve seen a financial adviser rather than going it alone. Brenda Ward asks why we’re not lining up to ask for help.
19 October 2021
Friends John and Jasper both started saving NZ$2500 a year when they were 25. But when they retire at 65, John will be NZ$1.5 million richer than Jasper.
John can buy a new car, live in a mortgage-free house, and never worry about money.
Jasper will look at his old friend with envy, buy from discount outlets in retirement, and might run out of money in his late 80s.
Why? John has a financial adviser.
This is the secret to getting rich faster, a survey of 2000 ordinary Kiwis run by the Financial Services Council discovered, says Richard Klipin, who heads up the council.
Advised Kiwis save more
“Our ‘Money and You’ survey found that New Zealanders who get advice save more, invest more, travel more and, overall, have improved wellbeing.
On average, financial returns for Kiwis that get professional advice are 4 per cent better than those who don’t.
They save 3.7 per cent more, and they travel six times more.
And it just gets better for those who get financial advice:
- They have KiwiSaver balances more than 50 per cent bigger than those who don’t.
- They have greater peace of mind.
- They have more confidence in making financial decisions.
- They’re more likely to have insurance cover should things go wrong.
Faced with those facts, it’s hard to argue that financial advice isn’t worthwhile. But it seems that we’re not getting the message.
Less than 20 per cent of us get professional financial advice and 40 per cent don’t see any benefit to it.
Barriers to action
“This shows that, as an industry, we need to do better in addressing the perceptions and barriers that are stopping New Zealanders from getting financial advice,” says Klipin.
The report says: “Kiwis are in poor financial shape, and think they are in a financially better position than they actually are.”
Many of us are unable to survive financial distress for much more than a month.
But it seems that we don’t think we’re rich enough to need advice. Nearly 38 per cent of people thought they needed more assets and wealth to make it worthwhile.
The cost of advice also put off people, with 39.4 per cent saying they thought it was too expensive, and 36.8 per cent saying they didn’t think they could afford it.
That’s ironic, says Registered Financial Adviser Jonty Horrocks of Element Financial.
He says his advice, and that of many other advisers, typically comes at no cost, with their payment coming from commissions from providers like your KiwiSaver provider, insurer, lender, or managed fund.
The right time
Other reasons for not getting advice included people thinking the ‘time isn’t right’.
They were waiting until they:
- Came into money, or got an inheritance
- Were in financial distress, or poor health, or were divorcing
- Were buying a house
- Neared retirement.
Horrocks says it’s never too soon to see an adviser.
He says a lot of people start with KiwiSaver as their first investment, to buy a first home.
“They build up their cash and KiwiSaver for a house and once they achieve that goal, then over a long period of time they don’t actually have savings; they have a huge chunk of debt.
“Advice can help you really understand the power of money, how a mortgage works, and how you can structure it to pay it off faster, but still have financial flexibility when you need it.
“The quicker you can reduce the mortgage on your own home, the sooner you can start thinking about building other investments. The key is having a plan.”
Someone in your corner
So, why are Kiwis who take advice better off financially?
Horrocks says having someone in your corner to help you reach your goals is a big help.
He says financial advice isn’t like going to a store for a one-time purchase – it’s a lifelong partnership.
“It’s about having somebody who’s going to be with you for the entire journey, helping you make decisions. Life doesn’t always go to plan, so you need an adviser who knows your goals, but how to plan for things that can throw a spanner in the works.
“Your adviser also has access to a trusted network of professionals, like investment advisers, lawyers and accountants, to build a team around you.
“These things are going to put you in a much better position than if you just tried to do it all by yourself.”
A plan cuts stress
He says, down the track, people with advisers will be more engaged with their finances and in a better position mentally and financially.
“We all know the stresses that personal finances or family finances can put on our relationships at work, and at home.
“When you’ve got that clearer picture, that better understanding of your money, then life just becomes a lot easier, because you’ve got a plan.”
He says budgeting is a dirty word, because some people worry they’ll have to give up the things they enjoy like going out for flat whites and avocado on toast, but rather it’s about money management and allocating money into ‘buckets’ for different aspects of life.
“It’s more about using your money in a much better way, knowing where all your money’s flowing and if there’s any unnecessary spending.”
He says the Financial Markets Authority’s reviews are creating a much stronger focus on client outcomes.
“It’s a really good shift that gives people the confidence that they’re not going to be dealing with someone who’s just doing it for themselves.
“Honestly, any time is the right time to get advice, especially if it’s free.”
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Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.