What is advice?

06 August, 2021

What is financial advice or planning?  In this article one of our Perth based advisers, Edward Eyles outlines the benefits of engaging with an adviser and the key stages of developing a sound financial plan.

Living in Australia, you will have heard of our financial advice profession. You've seen it on TV and in the paper (rightly or wrongly), and your friend's friend is an adviser, or maybe your parents regularly see one. But what does working with an adviser actually achieve?

Looking to research, David Blanchett and Paul Kaplan, from investment research house Morningstar, found engaging in an ongoing relationship with an adviser can improve an investors retirement income by a total of 22.6%1. Similarly, global investment manager Vanguard determined that adherence to strict advice principles can produce an additional annual return for clients of as much as 3% per annum, with 1.5% of that attributable to behavioral coaching alone2.

Financial services firm IOOF found that 93% of advised survey responders (~11,000) agree that accessing financial advice helped them get the most out of their financial circumstances3. You see where I am going with this. In aggregate, these studies (and there are many more) allow us to conclude that there is tangible benefit to you receiving financial advice.

So, what does financial advice look like?

A holistic financial plan is founded on:

Goal quantification

Every meaningful plan begins with a destination in mind. Spending time to get this component right is vitally important, whether you want to buy your first house, pay for education, retire in a French château, or even simplifying your finances. The nature of your ‘destination’ will determine why you are investing, why you are saving or why you are spending, which informs your need for risk (see below). You may even see an adviser because you are struggling to understand or form your goals and you’re worried about not making the most of your opportunities.

Risk and asset allocation

Whether you are holding cash and term deposits, buying your third investment property or betting on the next start-up to hit the ASX, you are allocating your financial assets and making decisions on risk. The overall risk taken in a portfolio is often called the ‘asset allocation’.  Gary P. Brinson, et al. in their landmark 1986 paper, “Determinants of Portfolio Performance” show that almost 94% of portfolio returns are attributable to asset allocation, rather than the underlying investments themselves (index or active funds, direct shares etc.).

An adviser’s job at this stage is to determine your risk tolerance, capacity and need (need is driven by goals), and in turn advise on an appropriate asset allocation for your current and future wealth. It is at this stage that your adviser will develop an investment strategy or apply an investment philosophy, and it is important that you question and understand this.


With goals defined and asset allocation determined, you can consider strategy. In Australia we are blessed with an incredibly complicated retirement system that provides many planning opportunities as well as traps. Retirement is far from the only planning opportunity, and what many people don’t realise is that cash flow will often drive strategy.

Your level of surplus (or deficit) income (named cash flow) will determine your ability to make the most of opportunities, and it is consequently important that you understand how much you are making and spending on a monthly basis. The sooner that you address this question, the greater your financial potential. Besides your immediate goals, there are areas that strategy must consider, such as entity structure and tax, insurance needs, and estate planning implications. This stage will often involve cash flow and asset projections that should give you an idea of what your life looks like based on your existing plans and your new strategies.

Product Allocation

At the tail end of this process, we can consider products. A product is the name of the company that provides your superannuation fund, insurance policy, or investment account. These are the names that make headlines and are thrown around at Sunday barbecues, however, they are the last thing that a financial adviser should consider. They are merely tools that implement a plan. Early in my career an adviser said to me ‘a bad strategy will fail with a good product, but a good strategy will still succeed with a bad product’. With plummeting product costs in the Australian market, this has never been truer.

At this stage you are probably thinking of the obvious catch. In today’s environment, depending on the complexity of an adviser’s clients and the support they have in their business, they will be able to look after 80-120 clients per year. If you’d like an adviser to dedicate a slice of their business to you, you’ll have to pay them to do so, and it is likely that they’d like you to commit to an ongoing relationship with them. Why is this in your best interest?


In my mind I liken the ongoing review of a financial plan to sailing. You may know very little about sailing, however, let’s say today you've decided to embark on a sailing trip around the world. You don’t have time to train but you are excellent with Google, and you have a few friends who can give you pointers.

There is one decision you need to make, will you hire an experienced coach to go with you, or will you go alone? Perhaps you figured out the navigation equipment and can set your sails, but when you are faced with 10-meter swell in middle of the Pacific Ocean, will you have a clear mind to deal with the challenges? Or when your course changes and you’re faced with unprecedented conditions, are you confident that you’ll make the right decisions for your future? Some people will be confident, but I encourage you to test that confidence.

Timothy Wilson and Daniel Gilbert in their 2005 paper, “Effective Forecasting, Knowing What to Want” found that we're not effective when predicting our future emotions in specific events. The above examples directly relate to your financial life, when markets crash wealth can be destroyed by making the wrong decision, and when laws change, projections are adjusted, and strategies need to be re-considered.

Once you’ve made the decision to find a financial adviser, your first challenge will be knowing who to trust. There are a few signals to look for, such as a firm with a fiduciary certification, defined investment philosophy, or high education standards. Ultimately your gut feel on whether you believe the adviser on the adviser side of the table will be your steward should be your deciding factor.

Contact Edward Eyles to discuss your advice needs today.

1 Morningstar research paper “Alpha, Beta, and Now…Gamma” 2013

2 Vanguard research paper “Quantifying Vanguard Advisor’s Alpha®” 2019

3 IOOF research paper The True Value of Advice” 2020