The basic value of a financial plan in terms of setting goals and ensuring investors stick with a target asset allocation has been overlooked and diminished in recent debates about the value of advice.
According to Vanguard Australia market strategy and communications principal Robin Bowerman, financial plans provide a framework to develop asset allocation and the discipline of regular reviews and portfolio rebalancing, in line with set financial goals.
He stated that “this is all basic stuff, but it is where a comprehensive financial plan adds real value”. He said that in the ongoing debate about where planners add value, “it seems one of the basic value-adds of simply preparing a comprehensive financial plan is overlooked or diminished”.
According to Bowerman, the value of a financial plan is overlooked when people focus on their investment returns, particularly at the start of a new year, and consider rebalancing them for the year ahead.
“The old adage is that constructing an investment portfolio is about risk versus return. However, return tends to be the headline act,” he said.
Strong returns from Australian and international equities as well as listed property may make people reluctant to rebalance away from successful investment positions towards other under-performing assets, according to Bowerman.
However these considerations should fit inside a financial plan, with any rebalancing carried out as part of an asset allocation target within a wider financial plan.
“A fundamental assumption here is that you are working to a financial plan,” Bowerman said.
