Behavioural Coaching and your financial plans

Behavioural coaching is a major component in how a financial planner adds value to your portfolio.

 

       

 

Last month’s topic was “How a Financial Planner adds value to a Portfolio?”, a major component being Behavioural coaching. The month before the topic was “The Value a Planner Adds to a Portfolio”.

This month the focus is on “What is Behavioural Coaching?”.

There are many long-term investment charts that show how portfolio values increase over time but even with this proof many investors react to short term market volatility which can often undermine attainment of long-term objectives.

Managing this reactionary behaviour is the definition of behavioural coaching.

Behavioural coaching is how a financial planner manages investor 'emotion' and 'reaction’ to market ‘noise' to ensure long term goals are achieved. A good example of this was the GFC. Planners often talked of the stress of having to explain the correct path under such extreme circumstances. In the end, though, those who played the long game have recovered well.

This form of control is hard to achieve when acting alone, it often requires teamwork and professional help.

Behavioural coaching centres on four issues:

  1. A financial plan is the anchor to all actions.
  2. Set clear expectations at the beginning.
  3. Managing the emotions that accompany periods of market volatility.
  4. Work together to ensure an effective planner / client relationship rather than simply reacting to markets.

Behavioural coaching may also involve assisting in areas such as budgeting to save money now to help attain goals later.

A planner, though, will struggle to help you achieve your goals if they aren't continually kept up to date with any changes in your life.

There are four components that you and your planner need to work on together. These are:

Goals

Without goals there can be no planning. However, goals must be realistic and for many investors this is itself difficult because of their starting age. The earlier a person has a financial plan then in most cases the better the outcomes.

Discipline

Market noise and emotion means decision making is difficult. It may even mean cuts now to help win in the end. Discipline is very hard to do on your own so help in this area is a major contributor to attaining long term goals.

Balance

This simply means not to put all your eggs in the one basket. Spreading the risk may mean the full extent of up swings aren't gained but it means that the full extent of down swings aren’t either. Balance means 'slow and steady' and we all know how that works out.

Cost

A planner needs to be able to show that they manage the costs in your portfolio, so they can be as low as possible. History shows that on average, lower costs means better performance.

This series of articles is based on a 16-year study by Vanguard Investments Pty Ltd.

 

Peter Graham
BEc, MBA
AcctWeb / PlannerWeb

 

Latest Accounting News

Expiry of 900,000 interest-only loans set for January

If you feel a bit aggrieved by having to move away from a workable interest only loan then you won't be...

Read More

Australian Taxation Office (ATO) Scam Alert: Fake Demands for Tax Payments

            The ATO has noticed an increasing trend of scammers demanding tax payments through...

Read More

Tax Office sounds alarm on popular property strategy

Both the Tax Office and the corporate regulator see property investment in superannuation as a “live...

Read More

Our Advent calendar for 2018

On behalf of all our staff we wish our clients a Merry Christmas, Happy New Year and a great holiday...

Read More

‘Please do not panic’: ATO boss addresses STP concerns

ATO Commissioner Chris Jordan has urged small businesses not to panic over the transition to single touch...

Read More

Employee Christmas Parties and Gifts – Any FBT?

The Christmas break-up party and/or gifts to employees can be exempt from Fringe Benefits if a few rules are...

Read More

Behavioural Coaching and your financial plans

Behavioural coaching is a major component in how a financial planner adds value to your...

Read More

FBT – Christmas Parties and Taxi Fares

Some employers, who are commendably anxious to protect their employees and clients from the drink/driving...

Read More

Information needed to be the BBQ expert.

Comprehensive statistics on how Australia is performing.             An up-to-date snapshot...

Read More

Tax consequences of trust vesting

The Australian Taxation Office (ATO) has issued a long-awaited ruling on trust vesting, including changing a...

Read More

Fringe Benefits Tax (FBT): employees’ private use of vehicles

The Australian Taxation Office has issued guidance for employers on determining an employee’s private use of...

Read More

ATO to contact clients over bank details

The Tax Office will be sending SMS text messages to clients who provided incorrect bank account details in...

Read More