Most of us appreciate that if we receive a good service, we must pay a reasonable price for it. Warren Buffett once famously said, “Price is what you pay, value is what you get” and this is true when it comes to seeking the best financial advice. Thanks to new quantitative research, we can now give you an accurate indication of the value of seeing a financial adviser.
The value of a financial adviser
Independent company, EDVOA, has carried out in-depth research to quantify the value of the service that financial advisers provide. We use this to allow our clients to compare our financial planner fees with the overall value of seeing a financial adviser.
We are referring to this research as “Adviser Added Value (AAV)”, which focuses on the difference in investment returns for an individual who does it themselves versus a client that receives financial advice.
EDVOA collected data from multiple organisations, which allowed them to quantify the percentage value of financial advice, as well as the multiple benefits it provides.
In order to produce the most accurate answer possible, they selected the most conservative value for each category. This allows for the creation of a reliable and realistic guide.
We can then use this to quantify both the value of seeing a financial adviser and the impact that advice has on a client’s investment over time.
How can a financial adviser help me?
Based on a £100,000 investment, the following breakdown demonstrates the value of a financial adviser when weighed against their associated financial planner fees:
Financial/Tax Planning – 0.7%
Properly structuring your finances can provide more than just peace of mind. In fact, it is one of the main contributing factors to achieving long-term growth and short-term efficiency. Savings vehicles, tax shelters and personal allowances have all been created for our benefit. As financial advisers, our role is to utilise all of these tools in the best way possible for our clients.
Even something as simple as assigning an investment to the right person can make a huge difference in terms of taxation or tax relief. We do this for clients on a day-to-day basis – so much so that it has become second nature. However, for the average person on the street it can feel like a minefield wrapped in legal red tape. This is just one reason why you need a financial adviser if you want to make the best gains.
Asset Allocation – 0.67%
We have all heard the phrase, “don’t put all your eggs in one basket” – a commonly used mantra in a risk management context. Asset diversification is a crucial tool when mitigating risk and giving an investor the greatest chance of sustainable growth and income. This is one area where the true value of financial advice comes into sharp focus.
What proportion should I hold in UK Equities? How much in emerging markets? How much in corporate bonds? And so on. As advisers, it is our job to ensure our clients have an asset allocation that matches both their risk profile and their long-term goals. We help our clients achieve a balanced portfolio with the right mix of assets to meet their specific needs.
Time in the markets is much more effective than timing the markets. We can never guarantee which asset class, index or market will outperform the others in any given year. Therefore, having a hand in as many different investments as possible reduces the chance of our clients missing out on potential growth and helps to mitigate against the effects of sharp falls in any single asset class.
Behavioural Coaching – 2%
“If you can keep your head when all about you are losing theirs” is a phrase famously coined by Rudyard Kipling in his poem “If”. There is a significant difference between its original context and the financial services industry as a whole. Yet, it is just as relevant because the value of a financial adviser shines through in their ability to separate impulse and emotion from financial planning.
As humans, we intend to be rational but are instinctively drawn to anything that provides maximum reward for minimum effort. Although this instinct has allowed us to become the apex species, it has also caused various issues in terms of financial planning. This is the primary cause of economic bubbles, such as cryptocurrency, dot-com and even “Tulip Mania” back in the 17th Century.
As financial advisers, we ensure that our clients steer clear of anything that resembles an economic bubble and instead find them a suitable investment for their risk profile.
In the event of a market downturn, most people are prompted into a fight or flight response. This might cause a person to sell at the worst possible time. Studies have repeatedly shown that setting aside your emotions is essential for effective investing.
Our role as advisers gives clients crucial guidance to calm the initial emotional response and ensures that they only do what is right for them. Our experience allows us to look at market fluctuations with the absence of emotion, which provides clients with a strategy when they need it most.
Withdrawal Strategies – 0.75%
Pensions have tax-free cash, off-shore bonds have top-slicing, and ISAs offer tax-free withdrawals. Most tax shelters and savings vehicles offer unique perks that are suitable for a range of scenarios. Ensuring a client withdraws a lump sum or income in a tax-efficient way is a financial adviser’s forte. We do this on such a regular basis it becomes a matter of course.
For the inexperienced this could prove to be detrimental. Even if an investment performs well, making a withdrawal error could result in a tax charge that negates the gain. Getting professional help can ensure unnecessary tax charges aren’t an issue.
Utilising every allowance and each product’s tax perks allows a client to access their investments in the most efficient way possible. The best value financial advisers do this instinctively.
Investment Selection – 0.82%
Creating a portfolio that is both diversified and sustainable requires proper investment selection. Here at Acumen, we work alongside the best fund managers, allowing us to access the best investment solutions to meet each client’s individual circumstances.
We ensure that our clients are given the most cost-effective solution for their investment needs, as well as those that have delivered consistently strong performance. This might result in a balance of active and passive funds within a single portfolio. This ensures that the potential for growth outweighs the charges, resulting in the maximum return from investments.
Our size also allows us to negotiate generous discounts from investment partners, which we can pass on to our clients – a value added service that simply wouldn’t be available to an individual investor.
Rebalancing – 0.44%
Rebalancing is often overlooked when it comes to amateur investing and yet it is one of the most important methods of managing risk effectively. If an individual asset experiences rapid growth, a professional will sell down that asset to ensure it retains its proportion within the portfolio.
This effectively secures the gain, whilst ensuring that if the value were to drop it would have a smaller effect on the portfolio as a whole. On the one hand, this may be specific to an individual holding but, on the other hand, it could also be relevant to a whole index or market.
If an investment is described as “overweight in US equities” that means that the portfolio has a greater proportion of the portfolio invested in the US than designed. This is common after a market has experienced significant growth, after which a fund manager would rebalance this effectively to secure as much of the gain as possible.
Find out the value of financial advice yourself by speaking to one of our advisers. Contact Acumen today on 0151 520 4353 or firstname.lastname@example.org.