Advised vs Unadvised Decision Making – What Costs More?

When it comes to making financial decisions, there is a common misconception that seeking advice can be costly. I would posit that if the advice is costly then it isn’t good advice. Good advice should provide identifiable value in the form of financial or non-financial means.  In a world filled with complex and significant financial choices, having the relevant information is essential.

Following Martin Rush’s article, The Foundation of Financial Decisions, I expand on this by providing a scenario which demonstrates the immense value of informed financial decision-making.

Imagine an individual who decides to make a significant investment property purchase without seeking any advice or research. Time poor, they rely solely on their own opinion and expertise. They locate a property, arrange a loan through their existing financing relationship, purchase it, and later realise that the ownership type through which they bought the property results in them paying the highest marginal tax rate. When they decide to sell the property, they take it upon themselves to list it and negotiate the sale price.

While this scenario is quite extreme, it illustrates the importance of seeking advice in various stages of financial decision-making that would alleviate any financial and emotion stress.

The following are examples of advice this individual could have received:

1. Property Research – Buyer’s Agent: These experts have the knowledge to effectively compare properties in the area, assess property conditions through inspections, and stay updated on key trends. These insights could lead to a smarter purchase decision both in terms of the cost to purchase and avoiding or identifying potential downsides that the individual could use to negotiate a better price or avoid the property entirely.

2. Obtaining a Loan – Mortgage Professional: A mortgage professional would have allowed the individual to explore a wider range of mortgage rates across different financiers and discover potential incentives they might have missed. Different lenders might also provide more financing giving the individual more purchasing optionality and success against other buyers.

3. Entity Structuring – Tax Professional: Without seeking tax advice on structuring, this individual has missed opportunities to optimise their tax situation. Different ownership structures come with varying tax benefits, and professional guidance could have led to significant tax savings over time both on income earned and capital gains payable.

4. Forecasting and Costing – Financial Adviser: A financial adviser could have helped this individual make a more informed decision by considering both the financial and emotional aspects of property ownership. They could have provided a projection of costs, such as land tax, council rates, and maintenance, helping the individual prepare for the financial and emotional responsibilities of property ownership.

One key takeaway from this scenario is that professionals in their respective fields can offer substantial value that far exceeds the cost of their services. In many instances, the benefit of their advice is ongoing, even though the cost is a one-time transaction. Seeking professional advice can help mitigate costly mistakes and unlock value through cost savings, and or amplifying upside potential.

It’s essential to consider your own knowledge and seek professional advice in areas that require further research as this can often lead to a much better outcome. Though you do not have to follow the advice given, by simply having the information your decision is more informed and you are better able to assess the potential benefits and consequences of the decision being made.

Our experts at Accru are ready to assist you in your journey toward financial success. Please reach out to your local Accru office for more information.