Taking control of your financial future can bring numerous benefits, and the key to any successful strategy is to take the time to plan ahead. Whilst the original planning stage is critical, it is equally important to review your financial plans at regular intervals, to ensure that the strategy remains on track to reach your financial goals and takes account of changing circumstances and evolving market conditions.
One way to visualise the importance of financial planning reviews is to consider the process in the same way as you would if you were planning a garden. At the outset, you will make careful plans as to the layout of flowerbeds and the positions of shrubs and other plants; however, as the seasons pass, without regular maintenance, the most attractive of gardens when first planted can begin to look unruly. Plants that show vigorous growth can overtake others and without regular pruning and maintenance, growth can be difficult to keep in check. There may be plants that begin to struggle, and these may need extra attention or indeed be replaced by plants more suited to the conditions. Long-term trends, such as changes in the weather, can impact on the type of plant that thrives in the prevailing conditions.
Changes in our lives could also mean our imaginary garden needs to adapt to our needs. For example, grandparents may need to make a garden more friendly for grandchildren to play in. Similarly, as we age, it may be appropriate to change the layout, so that the garden is lower maintenance.
The financial planning process is very much like designing and planting out a garden. Firstly, by identifying goals that you aim to achieve, you can ensure that actions taken are aligned with your priorities. This could be the purchase of a first home, building up retirement savings for the longer term, or producing an income in retirement.
Once you have identified your goals and objectives, setting out a structured plan will ensure that actions taken are designed to meet these objectives. Advice is, however, perishable and the original advice given may not remain appropriate for changes in life’s circumstances. Having children, facing divorce, ill-health, receiving an inheritance or change in employment are all common examples of situations where financial plans need to adapt to changing circumstances.
By arranging a regular financial planning review with a regulated financial planner, changes in our lives, variances in investment performance and updates to legislation can all be taken into account when considering whether any changes are needed to a financial plan.
One of the key areas that needs to be considered in any financial review is to analyse fund performance. There have been numerous high-profile instances over recent years where so-called “star” fund managers have suffered a period of underperformance after years of producing strong returns. Similarly, it is important to recognise that the global economy is constantly evolving. As a result, the performance of stocks located in different geographic regions and across a range of sectors of the economy, can shift significantly over time. The recent strong performance of companies involved in Artificial Intelligence is a prime example of an investment trend that has only emerged in the last year or two.
The danger you face by not carrying out a regular review of the funds held in an investment portfolio, is that weak performance trends can set in, leading to a poor outcome. Without a regular and detailed review of fund performance, years of underperformance can result in financial goals not being met.
Even if strong investment fund performance has been achieved, investments held outside of a tax-efficient wrapper, such as an Individual Savings Account (ISA) or a pension, need to be regularly reviewed so that issues such as a large Capital Gains Tax liability does not arise in the future.
A comprehensive financial planning review should go beyond just looking at the investments you hold. Changes in tax legislation, and consideration of alternative investment solutions should be an automatic part of every regular financial review. The financial services industry continues to evolve, and with it, new products and solutions are launched that could potentially be appropriate for your objectives.
Another vital element of any financial review is to consider the level of investment risk within the existing strategy. Changes in circumstances, such as your age, overall financial health or particular events such as divorce, the receipt of an inheritance or the need to pay for long term care, may well mean that the level of risk being taken needs to be adjusted.
Perhaps the hardest benefit of a regular financial review to quantify is the confidence gained that your financial wellbeing has received a thorough health check. This can give considerable peace of mind that investments remain appropriately invested and actions have been taken to minimise tax and keep the overall plan aligned to your circumstances and objectives.
If you have received financial planning advice in the past, but do not regularly engage with a financial planner to reassess the original plans and undertake a review, you run the risk that your financial plans fail to keep up with updated legislation and evolving investment trends or don’t adjust to changes in your situation. Similarly, if you have undertaken investment planning without the benefit of an advisor, you may not be aware of other solutions that may be more appropriate to your circumstances. A comprehensive review from an experienced and independent advisor could identify changes which could reduce costs, enhance performance and save tax.
At MGFP, we take great pride in the comprehensive regular review process we undertake with our clients. We see the regular review as being as important as the initial recommendations, and as we take a holistic approach, we look at all aspects of our clients’ financial arrangements during a financial review, taking into account subjects such as inheritance tax planning, gifting, income production, and tax efficiency. Speak to one of our experienced, independent advisers who will be happy to take a look at your existing arrangements and provide you with an unbiased and comprehensive review.
