Financial planning is really about… direct investments 

The annual Russell ASX Long Term Investment Report is a must read for every financial planner. You can read it here: Russell ASX Long Term Investment Report 2015.

Its contents may surprise you. The twenty-year average return on Australian property to 31 December 2014 was 9.8%, and the twenty-year average return on Australian shares to 31 December 2015 was 9.5%.

These are pretty good returns. These are what the average direct investor earned over the last twenty years, once the short-term bumps were ironed out and the long-term trends were known.

Some active fund managers did better, but not many.

Most clients would have been better off investing in a representative residential property portfolio, a representative parcel of blue chip shares and/or a property or shares-based index fund (or at least passively managed funds following indexation principles). Direct investments, bypassing active managers, were the best investments for these clients.

Sorry active fund managers, but this is a fact. This fact represents bad news for financial institutions. All the things that their investment managers learned in Business Finance back at Uni (basically, that it is only by chance that anyone ever beats the market average) have been proven correct. 

But this fact is good news for clients: direct investment-based strategies will outperform actively-managed investments over the next twenty-years.

And this fact is great news for advisers: their clients need personalised on-going support and advice on direct investments over the twenty-year investment period.

Clients need on-going support and advice.

Clients need regular meetings to review progress and fine-tune their strategy.

Clients need assistance selecting the investments.

Once you educate your clients on the wisdom and security of investing directly you will have more work than you can handle.

By the way, robots cannot compete with you here. Real financial planning advice requires real personal skills and a real ability to negotiate complex emotions and competing claims. Robots cannot do this. Robots cannot compete with an expert financial planner with years of hands on, in the trenches, experience dealing with (very) complex human beings and not just (very) simple logarithms.

The Dover Group