Professionals in the legal, accounting, financial and many other industries always say that you should listen to them, or consult them before you make any decisions.
But they would say that, wouldn’t they? That’s how they make their money. The more time you spend talking with them and listening to them, the higher the fees they raise and the more it will cost you.
The above view is surprisingly popular and likely to be heard any time someone suggests that you visit a professional for advice. Usually, it is teamed with a statement along the lines of “and it’s all just common sense anyway”.
But professionals have a good reason for wanting to get in front of you and to talk to you. In the case of a tax adviser, it’s usually to help save you money, or to ensure your affairs are in order to minimise the risk of HM Revenue and Customs (HMRC) imposing penalties for non-compliance. In the case of a lawyer, it’s often to protect you or your assets and in the case of a financial adviser, it’s to protect your wealth and manage your income stream.
A number of people, therefore, hire advisers for guidance and to help with the nuances of their position whether it’s complicated or not. However, even where people do engage advisers they can still run into trouble.
Recently Johnny Depp received a large amount of press as news leaked that his finances weren’t in as good shape as you might expect of an actor who is very well paid. It turned out that he had made a number of luxury purchases:
- $30,000 (£23,800) a month on buying and importing wine.
- $18m (£14.3m) on a 150 foot (45 metre) yacht.
- $200,000 (£159,000) a month on private planes.
Before Johnny Depp, Nicolas Cage also spent his way into financial difficulties by purchasing:
- $300,000 on a dinosaur skull (outbidding Leonardo DiCaprio in the process).
- Four yachts (one for each of the Caribbean, the Mediterranean, California and Rhode Island).
- $8,000,000 on a castle in Bath (as well as a castle in Bavaria, Germany).
Yet both of these actors had advisers – so what went wrong?
Well, it turns out that both actors ignored the (presumably very expensive) advice they had been given. Both were accused of purchasing items against specific advice, and not heeding the guidance they were given: the problem, essentially, was the communication between adviser and client, which seems to have been ineffective and something of a one-way street.
This type of problem can often be seen, even when we aren’t dealing with Hollywood aristocracy. Making decisions which impact upon a tax position without seeking advice can result in transactions that are not tax-efficient, which can end up costing clients money. Often the reason is that there has not been proper communication between client and adviser because the client did not want to incur fees to discuss the position. This approach might be seen as penny-wise, but it’s frequently the case that advisory fees are less than the savings they generate.
The role of an adviser is to be proactive and to help structure the affairs of a client properly and as efficiently as possible. It is only possible for this to happen, however, if there are open and honest lines of communication between the two parties.
The opposite can also be true, of course. Sometimes listening to your adviser can also cause problems that were difficult to foresee…