Practical tips, insights and articles to help you build the business, wealth, and lifestyle you want

Study findings: The quantified value of a financial adviser

Article By Adam Camac | | Financial Planning

Financial advice. Should you do your own research, ask family and friends, or hire a professional financial adviser?

A recent study by Russell Investments in the U.S. has sought to quantify the average annual value that good advice can add.

The study found:

  • A financial adviser can add at least 5.2% per year in monetary value to a client.
  • For example, a client with a portfolio balance of $250,000 who pays $3,250 p.a. in advisor fees typically achieves an annual gain of around $13,250. Net of adviser fees, that’s a $10,000 p.a. gain for the client.

Don’t panic (and other good advice)

The Russell Investments study found that investors valued not only being guided as to which investments to make, they valued their advisers helping them to avoid making poor decisions.

During the recent COVID-19 market panic and resulting sell off in March and April, those investors who choose to not sell their shares based on ‘hold’ recommendations from their adviser—amidst the intense emotion of markets dropping by more than 30%—were in a much better position compared with those who sold at the trough of the market, as markets rallied back much quicker than expected.

5 things people value most about financial advisers

The study identified 5 key areas of value that financial advisers provide to clients:

  1. Behavioural Mistakes: Managing client’s biases to help them avoid making poor decisions (such as panic selling mentioned above) accounted for one of the biggest portions of the increased value to clients.
  2. Reducing Tax: The next largest contributor to client value was advice that maximises tax efficiencies, by reviewing the client’s overall situation and ensuring the appropriate tax strategies are in place. In the Australian context this includes areas such as superannuation contributions, salary sacrifice, salary packaging, tax effective investments, insurance structures, and entity structures (e.g. family trust).
  3. Risk profiling and rebalancing: The study found that clients value a disciplined investment approach based on appropriate risk profiling (what are they comfortable with, what are they not) and rebalancing of their portfolio to match their preferences. This approach ensures clients have the right investment mix at the right time frames. For example, ensuring a younger individual takes on enough risk for a long investment timeframe, whereas an older person doesn’t have too much risk.
  4. Planning and ongoing guidance: The clients surveyed in the study cited planning and ongoing services and expertise as their fourth most valuable aspect of using a financial adviser. Shepherding a strategy from its origination to the final outcome and adjusting, tweaking, and coaching the client along the way gives clients great comfort and ongoing support.
  5. Investment management: The fifth component valued by clients is investment management which includes the correct allocation of cash to balance the client’s drawdown (spending) needs, defensiveness, and managing the impact of the historically low returns currently available for cash holdings.

What do you value most?

Different investors value different things, of course. Of the above five aspects valued by the U.S. investors surveyed, which do you value most?

The key take home from the Russell Investments study is that the value of a financial adviser exceeds the net improved investment return of the portfolio each year, and that through a range of measures, clients who are guided by an adviser on an ongoing basis continue to be better off in a real and quantifiable way.

In other words, financial advice more than pays for itself.

Altitude Financial Planning is a Corporate Authorised Representative of Altitude Financial Advisers Pty Ltd
ABN 95 617 419 959
AFSL 496178

The information contained on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Document.