Investing: Should you DIY, take advice or something in between?

As new investment products and platforms continue to simplify and increase access to investments, many South Africans are wondering if they need a financial adviser, or if they should go it alone. The answer is more nuanced than one or the other.

Carel Nolte, chief marketing officer at EasyEquities, the exchange traded fund (ETF) platform that promises “easy, affordable and safe investing”, says it is not a case of do-it-yourself versus advisers. “There is a place for both, and for a hybrid. It all depends on the user.”

He says EasyEquities, which saw users grow by 17.5% in the year to end of February 2023, is “aggressively rolling out more ways to help advisers provide the best for investors using the EasyEquities platform”.

Nolte lists some of the benefits of DIY investing as cost savings, speed, easy access and “the joy/fun of learning and engaging with your investments and being a part of an investor community”.

Suzan Ramotshabi, retirement products specialist at ETF platform etfSA who holds the Certified Financial Planner (CFP) qualification, says she can see why investors might think the development of technology and the accessibility of online investment platforms provides them with everything they need to do it themselves. But those in the know will tell you that it is “not as easy as it seems”, she adds.

DIY investing is a bit like self-medicating, says Lara Warburton, managing director of Integral Wealth and the Financial Planning Institute’s Financial Planner of the Year 2023. She says managing your money alone “can all work out fine, but there are times when you look back and wish you had just gone to the doctor first. It would have saved a lot of time, and often a lot of money”.

Ramotshabi says “most clients start looking for a financial adviser when they have failed”, or “they have a crisis from an investment management or tax perspective”. Read more: How can I find a good financial adviser?

Investments are just part of it

A financial adviser can help you with financial planning and portfolio selection, aligning your portfolio and products with your investment objectives, personal situation and risk profile. Crucially, an adviser will work to ensure that your portfolio is appropriately diversified and that costs are contained. However, having an investment portfolio that is appropriate in every way is only one aspect of financial health.

One of the biggest risks for DIY investors, says Craig Turton, partner at PSG Bedfordview, is that they focus their attention on their investment portfolio and ignore all other aspects of financial health. Other important things to consider are estate planning, tax efficiency, insurance, retirement planning, currency and inflation protection, he says.

Meyer Coetzee, who is head of alternative distribution at Prescient, agrees that investments are just one part of a holistic financial plan. “There are many other things to consider, like risk cover (life, disability and short-term cover), medical and health, wills, tax, budgeting, debt management, etc.”

He says DIY investors “might not think holistically about their investment goals and consider long-term goals (like retirement), medium term (like children’s education or a new home), short term (like a holiday) and immediate (emergency cash)”.

Tailoring a plan to fit your individual or family’s needs is a big part of the service, Turton adds. “It is hugely important to understand the family structure and dynamics.”

Good advice can be especially important for those who are planning to retire soon. Ramotshabi says an adviser will help you start thinking about the big change ahead and make adjustments early. “Without an adviser you would just retire and discover the pitfalls that could have been prevented later.”
 

Keep emotions out of it

An adviser can also manage your behaviour - helping you to develop good financial habits is a big part of the job. When short-term events unsettle the market, investors often want to act instinctively. An adviser can help you to stick with your long-term plan and not sell out of things when the market is down.

“If you have a solid foundation doing nothing is the best thing more often than not,” Turton says.

Ramotshabi says a key risk facing the DIY investor is the lack of a clear plan or strategy, which can result in making impulsive investment decisions “based on emotion and not reason”.

Coetzee says there is a danger that as a DIY investor you will not have the required patience or conviction to stick to an appropriate strategy through periods of volatility. He says an adviser should also “protect you from yourself by preventing you from making emotional decisions or following the herd”.
 

Costs and savings?

Ramotshabi says research by Morningstar on the value of advice “concluded that advisers can add more than 1% a year over one’s savings life through prudent planning and choices”. “The primary benefit comes through sound coaching and ensuring clients don’t disinvest at the wrong time,” she adds.

Advisers charge in different ways for different products and services, some charge a flat fee or an hourly rate, others charge a percentage of the value of investments. Whatever the charge is, it is your right to know how much you are paying, what you are paying for, and how and when that fee will be extracted.

Warburton says that many advisers offer more than one fee option. “You can select to pay for services as and when you receive them, the same way you do with a doctor or lawyer.” Read more: What does it cost to get financial advice?

Is your adviser adding value?

Prescient’s Coetzee suggests you ask your adviser to document how you can decide in future whether they are adding value or not and do this assessment at least once a year.

“Be proactive,” he says, “On investments, let the adviser explain to you what an appropriate benchmark return would be (relative to say a market benchmark and not in absolute percentage terms), what the risks are to your portfolio, what will be considered a good environment and a bad one etc. Write that all down and measure against that the next time you meet. Don’t just fall for smooth talk after your memory has faded.”

If you are struggling to decide about getting expert advice, Coetzee suggests a quick test on the retirement savings: “If you are able to broadly project what your annual pension will be in real terms, considering your past and future savings and your time to retirement, you might be able to manage your own affairs and craft a considered financial plan.”

If you don’t know what he is talking about, he suggests you get help sooner rather than later.

He also strongly recommends that investors use an adviser at least for a periodic review for a fixed fee to ensure you have a plan and that you remain on track.