‘How can I tell if my financial adviser’s advice on my inheritance is too risky?’

Q: I’ve been using a financial adviser since earlier this year (just as Covid-19 struck) but I now feel more confused and I’m worried about the decisions I’ve made since employing him. I’m just about to turn 60, single and have put as much as I’m allowed into super. I’m not currently working and I have no debts.

I’ve recently been left a fairly substantial inheritance by my parents and I have no idea what to do with it. The financial adviser has advised me to put it into a Netwealth wrap account and has set up the account for me. But I also recently redeemed a large sum from InvestSMART and lost on that – probably due to it only having been invested for a few years – on his advice and so am scared of following his advice again and losing more.

I understand you can’t provide personal advice but I’d be grateful for your thoughts on the risks posed by his advice on my inheritance.

A: The role of a financial adviser is not to make investment decisions on your behalf, it is to help you make the best investment decisions for yourself. I always say that when it comes to having the right investments, there is a simple ‘pillow test’ that you can apply. If you can’t sleep at night because you are worried about your investments, you have got the wrong investments.

If you are invested in growth assets such as shares and property it is important to understand that these are long-term investments. Over the short term they can be quite volatile and they don’t (or shouldn’t need to be) monitored on a day-by-day basis if the underlying assets are good quality. Sometimes people overestimate their tolerance to risk so you should speak to your advisor about your concerns and, if need be, re-balance your portfolio. Bear in mind that over the long term not having growth assets can be risky too, though, because if you can’t generate the return you need to fund your cash flow, you will potentially need to dip into more of the capital.

Good financial advice costs money so what you really need to look at is the value of the advice. The easiest way to do this is to tell the adviser what you would do without their advice, then let them run the numbers and show you how your suggested strategy stacks up against the strategy they advise. At the end of the day, you need to have a good relationship with your financial adviser and like all good relationships there should be trust and mutual respect. If you just don’t click with a particular adviser, that’s ok, you just need to find the right adviser for you.

If you’ve got questions about retirement income or about downsizing in retirement, don’t miss our FREE, online masterclass at 1.00pm AEST on September 22 with veteran finance guru Noel Whittaker, downsizing expert and author Rachel Lane and Kate Melrose, an expert on land-lease communities at Ingenia Lifestyle. Click here to register to attend.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.