Information Age Financial Planning. New Trend, New Ways

Globalization and the Information Revolution is rapidly changing economies all over the world. What is the lasting impact on a career in Financial Advisory?

Three significant changes have a lasting impact on how Financial Planning will be conducted in the future.

1. Migration of cheaper labour limiting Income Growth, threatening jobs.
2. Increasing Healthcare costs and Greying Population
3. Shorter Business Cycles due to Fast Government Intervention

This calls for a paradigm shift in traditional thinking about Financial Planning and Advising, in order to exploit the situation rather than be a victim to it.

Job Insecurity

Job Insecurity will be a certainty, with economic restructuring as a result of competition. Especially with globalization occurring at such a fast pace, one cannot assume that his job is secure or his skill is relevant in the years to come.

On a personal level, people have to constantly upgrade their skill-set to remain employable. As for financial planning, the first thing is to keep (1) an emergency fund that can last 6-12 months of expenses and (2) an opportunity fund, so as to invest in crisis in shorter business cycles.

Secondly, when implementing insurance plans, build in flexibilities to reduce monthly contributions, or even stop for a while when retrenched. This is crucial to maintain insurance coverage, as cost of healthcare is very high and rising.

Thirdly, consider building multiple streams of income, so that the dependence on employment income can be reduced over time, there is less anxiety when retrenchment comes and there is cash flow available for investing when everyone else is selling.

How can you build Multiple Streams of Income? Preview it here.

Investing Strategy – Manage Risks and Leverage

With shorter financial market cycles, there are opportunities for active asset allocation and application of leverage.

As the market rises and consequently over-heat, gradually reduce risk by moving to safer assets and reduce leverage. At appropriate troughs of the economy, gradually increase risk and employ controlled leverage based on your ability to sustain interest payments via cash flow (possibly from alternative sources).

While traditional buy-hold-rebalance according to Risk Profile, would still work on the long run, in the short run, the volatility as seen recently can easily shake the confidence of “long-term” investors with low tolerance to volatility.

Investors that do not use leverage to their benefit will also lose out to those who can appreciate the fine art of managing Good Debt.

Implication to Financial Advisers

• Build in flexibility in protection and accumulation plans, otherwise clients may have to give up their plans half-way.
• Help them build MSI through various means; this ensures they can continue their financial plans in case they lose jobs.
• Learn to advise on the use of leverage, and understand investing better, relating to the different phases of the business cycle.