The Importance of Annual Financial Reviews
Making an annual appointment with your financial adviser is an intentional, proactive process to help you take stock of your current financial situation and if necessary, adjust your plan of action to ensure you remain on track to achieve your investment goals. Most financial goals are by their very nature reasonably long term, whether it is saving for a deposit on a house or investing for retirement. Like any large project, investing becomes more achievable when broken down into smaller units. That’s where the discipline of an annual review with an independent professional adviser can be really helpful, as otherwise the years can slip by without goals being realised and with opportunities being missed.
Annual financial reviews are particularly important as you approach retirement. Regularly checking on income, expenses and investments and inputting all the data into a retirement projection calculation, which your financial adviser should easily be able to perform, can help you develop a clearer picture of where you stand, enable you to formulate a plan and alleviate financial stressors around retirement.
Annual reviews provide clients with a snap-shot of their current financial position and a personalised approach to investment goal setting, taking into consideration available funds, an estimated time horizon and tolerance for risk
You probably have several savings goals and investment policies. Your annual financial review should revisit each of your priorities and your savings and investing strategies for reaching them. If your situation has changed, make adjustments as necessary.
With your financial professional, look at each individual investment and evaluate whether it continues to have a role in your portfolio. It's important to match your investments to certain time frames or specific goals and align them with your personal risk profile, while adapting to any changes in your personal financial situation that occurred in the past year or are expected going forward.
For example, you may take on more risk in saving for retirement that is decades away and less risk when you reach your mid 50’s; or you may want a more conservative investment approach to save for a deposit on a house in 3 year’s time.
When analysing the performance of each investment, it is important to not only take into account market factors but also to look at the effective annual cost (EAC) of the investment. This is especially true of investments on some of the older life platforms. Also, when considering a retirement product, such as a pension or retirement annuity, it is essential to include an annual escalation so that the investment keeps pace with the cost of living as the years go by.
Make sure you have the most appropriate Risk Cover
There is a frequent misconception that when life cover is in place, it’s there for life. However, there is no such thing as a ‘one size fits’ all for your whole life when it comes to life cover. We regularly find that clients either have too little life cover to maintain the lifestyle they desire for their family, should the unthinkable happen, or they are over insured and applying funds to premiums that could be better invested elsewhere. It’s definitely worth reviewing life policies with your financial adviser on a regular basis and especially at times of life changing events, such as getting married, the birth of a child, employment status or buying a property. At the other end of the spectrum, life cover might ideally be reduced as dependents leave home, houses are downscaled and retirement approaches.
For those of us with dependents, there are huge risks for failing to do proper financial planning. Your financial adviser can assist with budgeting and is qualified to calculate the amount of cover required, so as to avoid over and under insuring.
Are you preserving your Assets for your dependants?
Use your annual review to make sure you have an estate plan, and that it continues to reflect your family status and financial situation, and makes the best use of the latest estate and tax laws.
It is rare that your financial adviser will be an expert in all areas of financial, estate and tax planning, but he will be in a position to recommend specialists where appropriate.
The importance of sitting down once a year with your financial adviser cannot be over emphasized
A formal review of your overall financial situation is invaluable, providing a comprehensive picture of whether you are on point with your financial plan. Consistently reviewing and updating your financial plan and investment portfolio as your life and goals evolve over time should become an integral part of a fit for purpose financial lifestyle and provide a great source of comfort that plans are on track for retirement.