A misconception that many clients, and even many financial planners, have is that a financial planner should be a person who can tell you in detail what is happening in the financial markets, and be able to help you pick stocks or other specific investments.

In my view, however, a financial planner’s job is not to be a stock picker. That job is better performed by someone who sits in front of a Bloomberg terminal, and does this all day and every day. For example, an investment manager working for an actively managed fund.

A financial planner’s job is to work with you, and develop a plan that aligns with your circumstances, needs, and objectives. A planner needs to have an awareness and understanding of the financial market, but the focus of their role shouldn’t be on specific investments. Their focus should be you.

In the context of an investment plan, a planner needs to understand your current position and your goals and objectives. What are your lifestyle expectations while you work and when you retire? Do you have other goals, like purchasing big ticket items, going on holidays, helping out your children, that need to be considered? What is your age and what are your financial commitments and cashflow requirements?

Your planner also needs to understand your tolerance and capacity in relation to financial risk. How will you respond if your investment falls? Do you have the capacity to rebuild your wealth if necessary?

After developing a good understanding of your situation, your planner might be able to develop an investment plan for you. And picking stocks is the last part of that plan.

The more important decision is what your “asset allocation” should  be. You can invest your assets in a number of different asset classes. For example, term deposits, domestic and international equities (stocks), and property. The decision about how your assets should be allocated is much more important than the underlying assets within each of these asset classes.

A financial planner will generally recommend that you diversify so that only a fraction of your wealth is invested in any particular stock. A specific investment should not make or break your investment plan. In the scheme of things, it’s only a small piece of the puzzle, and focussing primarily on your underlying investments means focusing on the wrong thing.

It’s hard enough to pick stocks if you do it all day every day. That’s the job of an investment manager, whose job is to focus directly on financial markets and specific stocks. That’s not the job of your financial planner, whose job is to focus on you.

Sonnie Bailey

In his spare time, Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or that he is an orthodontist. He is none of those things. In reality, Sonnie is a financial planner based in Christchurch. Through his business, Fairhaven Wealth (www.fairhavenwealth.co.nz), he provides independent, advice-only, fixed-fee financial planning services. Sonnie is a “recovering lawyer”: he has specialised in trusts and personal client work. He has also worked as a financial services lawyer for many years.

Leave a Reply

Your email address will not be published. Required fields are marked *

FOR NOTIFICATIONS, SIGN UP