Maybe you have never hired anyone to help with any of your financial decisions, because either you ‘are doing just fine’ or you just find it hard to entrust a stranger with the money that will shape your future.
You might already have an adviser who you see every now and again, and you get the sense that you are just paying fees for someone to come and drink your tea, eat your biscuits and show you the latest value of your money (which you already know because you got a statement in the post 2 weeks ago and you know perfectly well how to read – thank you very much). And we agree, there is next to no value in this.
How do you measure the value of what is a very subjective service? You could look at portfolio performance? How many superstar investment picks did they make? Did they manage to time the market before it fell?
These are the go–to measurements for many; mainly because all these things are easy to measure and they show up in a statement that you can scrutinise. A truly honest adviser will acknowledge that they have no control over the stock markets. Of course, they will try their very best to beat the markets or whatever target or benchmark you are comparing them against, we are no different in that respect. There is of course some value in this, but there is significant value in other, harder to quantify, guises.
In general, most people are either striving to achieve the life they want for themselves or are already living their best life and want it to stay that way. The single biggest obstacle to either achieving or maintaining that freedom is always you and the decisions you make. Before you stop reading whilst telling us to get off our high horse, just hold on. In his book, Thinking, Fast and Slow, Nobel Prize winning psychologist Daniel Kahneman points out that every one of us will (to some degree) suffer from cognitive biases that make it nearly impossible to make good financial decisions without a seriously bulletproof process for making decisions, or ideally, someone who can help provide us with a more objective view. That person can also highlight unseen issues such as future tax implications or even suggest alternative options that you might not be aware of.
Sitting here today with a calm head we can say that of course you don’t want to sell all your investments when the market looks scary as it has recently. And of course, it is so obvious to us that the right time to invest more money is at the bottom of such a dip, rather than waiting until after it has been flying. But time and time again, we hear about rational and sensible people selling when they should hold and waiting to invest when they should just be getting on with things. It’s that little devil on your shoulder that a good adviser should be protecting you from.
In an attempt to help consumers understand this value in cold hard numbers, there have been a number of recent industry studies that have produced some interesting findings:
- Investment Firm Vanguard estimate that advisers can add more than 3% per annum in net returns for clients. They cited helping avoid behavioural mistakes (1.50% pa), spending strategy (1.10% pa) and rebalancing (0.35% pa) as the largest contributors.
- Asset Manager Russell Investments believe the figure is even higher at 4.4% per annum in net returns for clients, through a combination of preventing behavioural mistakes, financial planning, tax smart advice and rebalancing.
- The International Longevity Centre (ILC) has been running a multi-year study on this topic. Here are their most pertinent conclusions:
- Taking advice has added £2.5bn to people’s savings and investments
- An ongoing relationship with a financial advisor leads to better financial outcomes. Those clients who received ongoing advice had pension wealth 50% greater than those who took one off advice
- The benefits of advice outweigh any costs associated with it
- The simple fact is those who take advice are likely to be richer in retirement
- The University of Montreal estimated that the savings of an advised client will be 2.73 times larger over a 15-year period compared to a non-advised client. Even over a shorter time frame of five years an advised client would achieve the savings pot 1.58 times the size of a non-advised client.
Of course, there are bad advisers and those that will add little value as there are in all industries and walks of life. But as the figures above suggest, find a good adviser who has your interests at heart, and you are going to be getting some serious bang for your buck.
These are relatively recent studies, but we have known that this is where we really benefit our clients for a long time now. We spend time getting to know our clients, their hopes, fears and what is really important in their lives. It is these (sometimes difficult) discussions that allow us to be able to reflect these issues in their plans that we create together and to ensure that costly mistakes are prevented. That is where the real value is.