You’re not going to be surprised that, as advisers, our firm belief is that an advised client will get a better financial outcome than a non-advised client. How to prove, though, that we’re not just biased? What is the actual value of that advice? How can it be quantified?
Most importantly, the value of advice is not simply tied to fund picking or performance.
A good example of this was when the FTSE 100 fell by over 26% in early March due to panic over the coronavirus outbreak and some advisers chose to move their clients’ investments out of equities into assets, traditionally viewed as ‘safe havens’. Although they may have moved them back into more equity-dominated funds in April, the FTSE 100 actually made its biggest recovery between 23 and 26 March so their clients’ money would have been out of the market at the optimum time. This is a clear sign that adding value by trying to “time the market’ does not work.
Advice, in our view, goes much further. It can cover:
- Behavioural coaching
- Spending strategies
- Portfolio rebalancing
- Tax-smart recommendations
- Financial planning
It’s all part of building a long-term relationship where the adviser really gets to know the client and understands their objectives for life.
Behavioural coaching, in particular, can be useful in helping an investor to ignore market noise and to keep their emotions at bay so that they avoid expensive mistakes and stick to their long term goals.
Research over a number of years by the International Longevity Centre (ILC) showed that using a financial adviser led to better financial outcomes in the following ways:
- Taking advice added £2.5bn to people’s savings and investments,
- The pensions of clients who received ongoing advice were worth 50% more than those who took one-off advice.
- Those who took advice were likely to be richer in retirement.
- The benefits of advice outweighed any costs associated with it
In addition, the University of Montreal estimated that clients with an adviser would have a 2.73 times larger savings pot over a 15-year period than clients who hadn’t seen an adviser. If that time frame was reduced to five years, the savings pot would still be 1.58 times greater.
Different investment companies quote different figures but on balance agree that advisers can generate between 3% and 4.4% per annum net returns for their clients.
Set against this backdrop, it would seem financial advice does have a real value to offer.