Sticking to Your Financial Plan

Video Transcript
Alanna Petroff: We just wrapped up our 6th Annual Morningstar Investment Conference where Nick Cann was one of the attendees in the audience. Now, Nick Cann is the chief executive of the Institute of Financial Planning and he came into the studio today to talk about some of the lessons learned from the Morningstar Conference, particularly during the week were the FTSE 100 fell by 5.5%. No one was very happy that week.

So, Nick, let's talk about some of the lessons learned from the Morningstar Conference and how you can apply that to your financial planning?

Nick Cann: Thank you. Yes, and I think Alanna, to the see the energy from the delegates there and the desire to understand far more about what the future looks like, as they are – the advisers themselves are helping investors, because this is a very difficult time to consider what to do.

For us at the Institute of Financial Planning, what I take away at all these events is a need for the consumer to think about what it is they are trying to achieve, their plan or what their start base is, what their current asset mix is, what context they have to start to invest for the future. Because if the professionals are finding it really difficult to be successful. Then for the amateurs or would-be professionals, it becomes even more so. Therefore, a lot more information is perhaps required to help them establish their plans.

But I think importantly, it's understanding what is required in the short-term, medium-term, long-term. Working out where strategies need to meet particular liabilities and so on in the future and how they can then work those strategies through, either alone, if that's still their desire, or how they can align with a professional financial planner to put some strategies together that are going to help them meet their goals and perhaps give them more time to relax and enjoy themselves rather than worry about the marketplace.

Petroff: So when it comes to strategies, you are talking in particular about the long-term and short-term, not just reading an article and saying, oh, that stock looks good, that company looks interesting. So explain a little bit more about what you mean about these long and short term strategies?

Cann: That's right. I think we see a huge amount of information, the Internet and everything that gives us huge amounts of information, ideas, whether it's in articles or whether it's experts talking about particular things. We can reflect on the Facebook launch just recently as an example of a huge amount of hype, a short-term upturn and then a massive immediate downturn. If you are following that sort of short-termism, you can make some huge mistakes as a result of impulse buying or selling, as we've learned particularly from behavioral finance.

So, the context of short, medium, long-term, is what's important for people to be able to meet particular expenditures or particular capital requirements that they have in their own life, that they need to ensure they have the investments that they can realize, if they need to, at times when they need to do so.

So younger people, clearly, they’re looking to build up assets hopefully for the future. Whereas some people are getting older and thinking about retirement and so on, they are starting to need to focus far more on income and how they can generate enough revenue to look after their retirement as they would ideally like to. And that’s what professionalism and that help is going to help in those areas.

Petroff: So when the markets are falling and everyone around you is losing their head, what would you suggest to people in terms of staying – feeling like you are solid and feeling confident in the financial plan that you have?

Cann: Well it’s to ignore, in many cases, the natural impulse. The studies on behavioral finance will tell us that most people will actually sell when the markets are at a high … and that would be excellent, wouldn’t it? Sorry, they would actually sell…

Petroff: They’d sell when the markets are at a low…

Cann: …when the markets are at a low because they panic and they start buying when a trend is going and they buy at the top of the market. That in itself is no good.

So, even if people are comfortable with the strategies that they are able to work out alone, by their own research and so on, it is keeping with those strategies and reviewing those strategies against what the intent was at the beginning. Because if it was right at the beginning, it is likely to stay consistent unless there is either economic change or other factors that need to change that particular strategy. That’s what professional advisors, financial planners will work on that basis with the clients. Understanding their risk and their tolerance to risk, and all those sorts of things, by creating a strategy that is likely to help them meet their goals in the future. And they’ll continue to review that and to make sure that the decisions that were made at the beginning are still constant and, therefore, rebalancing and so on to make sure that that remains consistent and the client at the end of the day or the consumer is likely to achieve their objectives, which is what we are all trying to work towards.

Petroff: Okay. Thanks very much for joining me.

Cann: Thank you.

Petroff: That was Nick Cann from the Institute of Financial Planning.