To receive financial advice costs money, so it is no wonder the question arises – ‘Why do I need advice?’ or ‘We can invest ourselves via an app.’
A common misconception is that a financial adviser’s role is to generate returns on your investment, and whilst this is of course a key element to help achieve long-term growth – what about all of the other areas of value that is added
Research studies1 over the last 15 years have now started to evidence that there is a quantifiable increase in return from working with a holistic financial adviser, outside of investments. Specifically, a study from Russell Investments identified the following key areas of value.2
Appropriate Asset Allocation – 0.90% p.a.
With a plethora of investment apps available at the push of a button and the promise of ‘quick wins,’ it can be tempting for investors to build their own portfolios. However, unless you have the expertise skill set and substantial time to research, you are unlikely to have an investment strategy that meets your needs, with the appropriate level of risk. One of the key elements here is ascertaining if you have enough risk to meet your goals so that you do not fall short of meeting them, or if you are taking more risk than necessary to achieve them. The role of the adviser is to understand your goals, and tolerance to risk, and then formulate an asset allocation with the appropriate balance to give you the highest probable chance of achieving them.
Behavioural Mistakes – 2.2% p.a.
Behaviour coaching is one of the greatest value adds to having a financial adviser. Effectively managing a client’s emotions when markets get shaky can mitigate them from making wealth-destroying decisions. Equally, advisers can help clients navigate any fears that make them focus on losses rather than gains, which can see people acting on the emotion of short-term volatility and jeopardise their ability to meet their long-term goals.
As they say in poker, scared money don’t make money. An adviser can refocus the perspective on your long-term goals and remove emotions from the tools used to help you achieve them.
Cost of Cash – 0.6% p.a.
Whilst cash is important for liquidity, short-term goal funding and dampening volatility, having too much cash sacrifices growth and reduces your spending power each year, with inflation increasing the cost of living. A trusted adviser can find the right balance of a well-diversified portfolio personalised to your specific needs.
Tax Effective – 1.5% p.a.
Whilst a financial adviser is limited in the realm of tax in comparison to an accountant, they have the knowledge of managing and optimising personal and superannuation investment tax. This includes structural tax strategies, portfolio strategies, and tax implications of rebalancing, buying or selling. A good financial adviser will also work closely with a client’s accountant and solicitor for more complex needs.
Expertise – Priceless
The framework wrapped around advice starts with deep meaningful conversations including goals, personal circumstances and preferences, and translating this into a plan. By continuing to track and adjust as necessary with changing circumstances and unforeseen events, clients have increased confidence in their direction and decisions in life, long-term perspective and ability to drown out the noise. Access to expert knowledge and experience is invaluable, particularly through times of change, and most importantly, regain your priceless time back by outsourcing the complexities of managing your financial affairs.
So overall that is an impressive 5.2% of potential return every year beyond investing, from having a trusted financial adviser.
At Alman Partners we value our deep long-term relationships with our clients and the journey we go on together.
1https://intl.assets.vgdynamic.info/intl/australia/documents/resources/adviser/Vanguard_Advisers_Alpha.pdf
22020 Value of an Adviser Report. How can financial advisers amplify their value. Russell Investments.
Kelsey Dent (DipFP, ADFP, BA Hons [Bus,Mgt]) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Performance data shown represents past performance or simulated performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.