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Planning to be a Financial Planner?

Just like a coach in sports, a financial planner's role is to help his clients attain their desired retirement lifestyle through his skills.

It is no surprise that there is rising demand for financial planning services. With an ageing population comes the need to ensure lifestyles can be maintained in retirement. Also, consumers today have an increased understanding of the financial opportunities available but lack a framework to make the right decisions for their circumstances.

Behind most champion athletes is a coach providing guidance in improving techniques, setting goals and continually fanning the motivation to achieve them. A financial "coach" plays much the same role for champion investors. Besides traditional elements of financialplanning such as providing expert technical advice, he helps investors control their instincts, stay focused on their long-term strategy and break through the psychological barriers that prevent success.

Examples of common behaviour that can be destructive include:

Myopic loss aversion: Long-term investors who assess returns every year are more likely to make poor judgements, allocating assets as if they have an investment horizon of just a year. this is typically reflected in high weightings to cash and bonds, despite the fact that they are likely to produce lower returns than shares over the long term. While many retirement funds have planning horizons of 30 to 40 years, the actual decisions are often based on horizons of just 12 months.

Rules of thumb: Rules of thumb, or heuristics, often use kernels of truth to arrive at erroneous conclusions. Some investors followed the heuristics that "all dotcoms have tremendous earning potential" and drove tech stocks to distorted highs in 2000. Later, a heuristic such as "all dotcoms are overvalued" may have been closer to reality.

Stereotypes: Flawed heuristics aften flow from judgments that were made based on stereotypes, a practice that is called "representativeness". An investor may now judge, for example, that all technology stocks will be loss-makers. This belief may prevent an investor from participating in any growth in high-quality tech stocks.

A financial coach helps investors avoid such behaviour in much the same way a sporting coach helps elite athletes. He helps to:

1. Set goals
Investors will benefit from setting clear, achievable goals, such as the level of income they wish to live on in retirement. Short-term goals such as buying a new car are also important, so investors get to enjoy the ride while driving towards their destinations.

2. Provide advice
Up-to-the-minute technologies and information are used by elite athletes to assess their progress and any required changes in strategy. Investors should too. An expert coach will focus on each client's needs, using his technical expertise to devise a strategy and keep it up-to-date.

3. Overcome barriers
Establishing clear goals and a strategy that is achievable are essential for both athletes and investors.Major "obstacles" to success lie in the mind. Those who cannot accept short-term pain are unlikely to achieve longer-term success.

For example, every investor has to live with the pain of occasional market downturns, where excessive fear leads some investors to sell assets for less than they are worth. Excessive optimism can be just as damaging. Investors who chase "hot stocks" rather than rationally assessing the outlook aften do just as poorly.

An expert financial adviser will gain a deep understanding of these behavioural characteristics and help investors deal with them. Those investors who can truly overcome self-destructive impulses during difficult market conditions and stay focused on simple, relaible investment principles during the good times will have the best possible chance of achieving their goals.

Job Knowledge
Licensed and competent financial advisers play an instrumental role in empowering their clients with knowledge to understand how each major decision impacts other areas of their financial health. To perform this role well, the financial adviser must have in-depth knowledge in areas such as investment planning, risk management, tax and estate planning. He shares this knowledge with the client and together, they develop strategies and a holistic financial plan that fit the circumstances.

When it comes to technical expertise, financial planning must go far beyond simply recommending which unit trust to buy. Focusing solely on investing and growing money while neglecting to preserve a client's wealth is ineffective planning.

Lawyers and accountants have knowledge which is enhanced by skills gained while practising. These can be transferred to the financial adviser's role very effectively. Another factor that makes accountants and lawyers suited to a financial planning career is their professionalism and maturity in dealing with clients.

Professional approach
Those who have decided on a career as a financial adviser will face a new challenge, namely that of knowing what characteristics of a business will support a professional approach to providing quality advice. This starts with a culture where advice drives the products chosen, as opposed to one where product sales drive the advice. Achievement of client goals and retention is the key measure of success for the firm, rather than upfront product sales.

A quality financial planning business makes core investments in people and processes. A firm committed to advice will have the capacity to produce a comprehensive financial plan that relates to each client's aspirations, goals, priorities and values. This plan will not sit on the shelf but will be a living document. There will be ongoing and proactive services which deal comprehensively and cost-effectively with changes in personal and external circumstances. Fees should be transparent and disclosed.

Personality counts
While professionalism and knowledge count, it is the financial adviser's interpersonal skills that will enable him to stand out from the crowd. If he can build rapport easily and gain trust quickly, then his clients will be more willing to share personal financial information and entrust their financial well-being into his hands.

In more developed financial markets such as the United States and Australia, the job of a financial adviser is firmly established as a well-respected and rewarding one. Other advantages of a financial planning career include high pay, workplace autonomy and comparatively low stress.

Financial advisers in Singapore enjoy similar rewards and the role has gained in popularity and respect with the growing industry.

Most importantly, as a financial adviser, you get immense job satisfaction from knowing you have made a difference in people's lives by helping them turn their dreams into reality.

This article first appeared in Asia Financial Planning Journal vol 5. issue 2.