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Recently, one of our friends got in touch with us saying that they are happy with their current adviser but wanted to get a second opinion. We organised a meeting with them and realised that what they actually had was a portfolio manager rather than a financial adviser.
 
So what’s the difference, and why is it important to know which one you have?
 
A portfolio manager does exactly that – they manage your financial portfolio. But so does a financial adviser. However, while the portfolio manager’s main focus is to get a good return or outperform the sharemarket, a financial adviser has a more holistic approach when it comes to your finances.
 
In fact, a financial adviser looks at why you are growing your assets and how much you actually need. In order to do that, they look at something very important: your goals. 
 
After an hour-long discussion about our friend’s life goals, and what they wanted to achieve in their retirement, we realised they already had more than enough cash to do what they wanted to do. In other words, they may have kept working for longer when they didn’t need to. As their money stands now, they can achieve all their goals. So having a portfolio manager alone does not help you work towards your goals like a financial adviser can.
 
When you see a good financial adviser, they’ll manage your portfolio too, of course. We think a good amount of time to spend on portfolio management is about 10% of your meeting time. The other 90% should be spent discussing topics like:



  • What things are important to you / what do you value in life?
  • What the financial outcomes would be if you worked for another few years
  • What your ideal retirement looks like 
  • How you will draw an income in that retirement
  • What outcomes you will get by making different choices and changing strategies
 
Nick Murray sums it up beautifully when discussing how a financial adviser should split their time: goals first, then financial plan, then portfolio.
 
So even if you have the best portfolio manager in the world, it’s pointless if they don’t consider what the money is actually for. That is, what is its purpose and how much is enough to get you to where you want to be?
 
A good financial adviser should give you direction – not just manage your portfolio.
 
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Published by Dallas Davison, Michael Hogue and Ali Hogue. March 15, 2022