Advice clients are 5.2% a year better off
Advisers generate an average 5.2 per cent extra cash per year for clients regardless of market movements, through services such as asset allocation and behavioural coaching, new research has revealed.
Russell Investments’ Value of an Adviser Report sought to quantify the value delivered by advisers in five service areas beyond investment advice – asset allocation, correcting behavioural mistakes, adequately managing clients’ cash holdings, setting and monitoring goals and tax structuring.
The report found that advisers generated an average 2.2 per cent per year for clients through ensuring they bought and sold assets at the correct times in the market cycle, and 1.5 per cent through ensuring investments were made in tax efficient structures such as super and transition to retirement.
A further 0.9 per cent was generated through asset allocation basics such as selecting the correct investment option in the client’s super fund, and 0.6 per cent by diversifying a client’s cash and fixed income holdings.
While the fifth non-investment service – setting and monitoring goals – was not specifically quantified in the report, it is understood that this could often be the key piece of the puzzle when it came to delivering value for clients.
Why financial advice still pays off
Actuary firm Rice Warner recently released the Future of Advice report, which offered a unique insight into whether the financial benefits of seeking advice generally outweigh the cost of advice overall. Rice Warner found that advice is very much worth it in two ways:
Firstly, because of the work you need to do to manage your personal finances. Consumers find it extremely difficult to be across their financial affairs because it really is complex – consider tax, super, social security and all the different rules that accompany them. Obviously, the personal financial system is complicated, and in helping you to navigate that, financial advice becomes inherently valuable.
But financial advice also literally pays off. Rice Warner’s research shows those who received advice over 4 to 6 years accumulate 60% more in assets than those who don’t receive advice at all. Over 15 years, the difference is huge at 290% – or nearly three times as many assets accumulated.
Good advisers will help you with four things:
An objective view
A good adviser will look at your financial situation without an emotional attachment and ask questions you might not like – as well as highlighting areas where you could improve.
Expertise
It takes many years and a lot of study to achieve the designation of Certified Financial Planner. Most people we help do not know how to choose or manage their investments appropriately, and many are not receiving the amount of age pension they are entitled to. Some, on the other hand, are simply paying too much tax. That’s where your adviser can help – their expertise means they know how best to structure investments, whose name they should be held in, which assets are assessed for the age pension and which ones aren’t.
Discipline
Often the most important role as a financial adviser is to provide the discipline to continue saving, pay a certain amount off your loan or maximise your contributions to super. Rebalancing a portfolio regularly is another major task, which requires discipline because the majority of people simply don’t do it.
Investment management
It’s important for a good adviser to keep you informed on how your investments are performing and to ensure you don’t go and do anything you will regret later – such as selling out of the share market in March 2009 at the height of the GFC, or borrowing money to invest in property at age 60 in an obviously weakening property market!
