From Dollars to Sense: The Value of Financial Advice
When it comes to determining the value of a financial adviser, it comes down to more than dollars and cents.
Numerous studies have shown that money is a relationship stressor, 33% of Australians find dealing with money stressful or overwhelming[1], and 44% admit to arguing with their spouse about money at least occasionally[2]. If money alone spikes your blood pressure, just imagine what the more complicated concepts of investing and financial planning can do.
In addition to improving clients’ financial outlook and outcomes, financial advisers can help reduce that stress. Herbers & Company research found that people who use a financial adviser are nearly three times happier than those who manage their own finances. Specifically, they were more fulfilled, grateful, intentional, and pleased with their impact on the world - cited as four predictable keys to happiness - than those who did not have a financial adviser[3]. According to the study, those who sought professional help managing their money were also happier in their relationships and communication.
How much value?
While you may see the primary role of financial advisers is to help clients achieve investment outcomes, a more valuable role is as a behavioural coach and risk manager. Advisers provide substantial value by helping clients avoid pulling out of markets at the wrong time and continue to stick to their long-term plans.
In a complex world that keeps posing challenges to investors, advisers continue to add value that enables and empowers their clients to attain their long-term financial goals. Australians have relied on their advisers heavily to navigate both the practical and emotional aspects of investing. It is a relationship that proved fruitful not just in periods when markets fell, but also when investment assets rose. Of course, financial advice encompasses much more than investing. It requires in-depth knowledge of taxation and social security, plus the understanding of human behaviour that’s necessary to support people making life decisions.
How is it calculated?
Russell Investments Value of an Adviser study highlights five areas of value a Financial Adviser delivers, being Appropriate asset allocation, Behavioural coaching, Choices and tradeoffs, Expertise and Tax savvy planning and investing. Over the past year, Russell Investments' annual analysis shows the value of an adviser in Australia is at least an additional 5.9%.
A. Appropriate asset allocation. A master at balancing risk and return, an adviser ensures you’re invested in the appropriate asset types based on your goals and circumstances. Whether you are an engaged or disengaged investor, professional advice can help prevent you from falling behind in your retirement planning. The report calculates this adds an additional 1.2% per year on your investments.
B. Behavioural mistakes avoided. Contrary to the key to successful investing – buying low and selling high – many investors end up doing the opposite. This can inadvertently result because of several behavioural biases including herding, where we do as the herd does, for example, sell when everyone is selling, fear and loss aversion, where we prefer avoiding loss rather than acquiring equivalent gains, overconfidence, where we overestimate our ability to perform tasks successfully leading to buying and selling too frequently, and home bias where we prefer what is familiar, which can expose investors to country-specific risk. An adviser can help you maintain your long-term strategy in the face of volatility. The report calculates this adds an additional 3.4% per year on your investments.
C. Choices and trade-offs. Advisers are financial coaches whose work extends beyond the selection of investments to holistic wealth management. As you go through various life stages, your advice needs change. An adviser can help explain choices and trade-offs, including supporting adult children's mortgage deposits, funding grandchildren's education, addressing estate planning complexities and more. Your financial plan is a roadmap of how advisers work with clients to help address their specific needs. The report calculates this value will vary depending upon your specific circumstances.
E. Expertise. Your adviser is more than a financial technician. They can act in many different roles throughout your life’s best and worst times. They are also specialists in human behaviour who build trusted relationships with clients that allow them to deliver on their recommendations. In the best of times, advisers help clients achieve life-long goals and celebrate personal milestones along the way. But they also support clients in challenging times – through trauma, illness, financial crises, job loss and death. Your adviser may be your Guide, helping to manage the practical and emotional burden of decision-making with your finances, or they can act as a sounding board. They may be your Guru, serving as a trusted expert and source of practical guidance to help you make informed decisions. Or they may be your Gladiator, acting as your advocate, ensuring your interests are protected in situations such as insurance. These roles will change as your needs change. The report calculates this value is priceless.
T. Tax effective investing. Your adviser’s role goes beyond markets and estate planning; it involves crucial tax knowledge. The value of tax savvy advice is the ability to optimise assets across superannuation, investment bonds and other tax structures, and to deliver tax-effective investment strategies and maximise tax benefits. The report calculates this adds an additional 1.2% per year on your investments.
A is for appropriate asset allocation: 1.2%
B is for behavioural coaching: 3.4%
C is for choices and trade-offs: Variable
E is for expertise: Priceless
T is for tax savvy planning and investing: 1.3%
Overall, this adds an additional 5.9% PLUS!
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The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.[1] https://financialcapability.gov.au/strategy/part3[2] https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/about-fidelity/Fidelity-Couples-and-Money-Fact-Sheet-2021.pdf[3] https://www.businesswire.com/news/home/20211207005798/en/Money-Can-Buy-Happiness-If-It%E2%80%99s-Used-to-Hire-a-Financial-Advisor-Study-Finds