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Changing lifestyle and family structures, increased product complexity and choice, as well as an ever-evolving savings and investment environment, all mean that more people are seeking access to financial advice, in order to make more informed and sound financial decisions.
The typical product-led approach tasks financial planners to sell various products to the market, and assumes that both the clients and the financial planners fully understand the full extent of how the products work and what they can and can’t do for them. Sadly with complexity this is often not the case.
This means that an advice-led approach is critical.
While there are very seldom badly developed financial products, the challenge from an advice perspective is to ensure that the product being considered is appropriate for a specific individual’s needs.
Without having a fairly good understanding of the financial structures and complexities, you could land up with a financial product which is not appropriate for your specific needs, which in turn could result in a potentially disastrous situation for your finances.
Given that there are thousands of products currently available to individuals, each with a number of differences, it is a difficult, but critical task, to fully understand all the differences.
An advice-led approach is based on some of the leading thinking in behavioural finance which combines the disciplines of psychology and economics.
This results in financial planners first engaging with clients to ascertain and understand their needs and tasks the financial planner to ask the right questions and to deal with the relevant dynamics unique to the client.
This approach is effectively a decision-making framework that individuals go through to make a decision on their financial future. This includes assessing where they are now, where they want to be in the future and ultimately how they are going to get from one point to the other.
By using this framework, the financial planner is in a position to make the most appropriate recommendations relating to the individuals specific investment strategy and investment vehicle utilisation that will create the greatest likelihood of the client achieving their set objectives.