Why should you engage a financial adviser, and what value can you expect them to add to your finances every year?
The value of engaging a skilled financial adviser during key financial milestones in an individual’s life is normally obvious. When an individual has a financial need and a product must be put in place to meet that need, there is a clear value to providing that product.
In contrast, the value an adviser adds if you engage them on an ongoing basis can be difficult to quantify at the outset as it can take long periods for the benefits to materialise and when they do, they can come all at once. For example, the benefit of a suitable risk management strategy will only become clear if the individual becomes ill or dies, or, the benefits of a well constructed low cost portfolio will take time to deliver a strong performance. The graph below outlines a summary of the core values a financial adviser like Distinct brings to their clients.
However, these values are somewhat intangible and attaching an economic benefit to each value is not straight forward. An analysis of the the economic impact of financial advice is likely to fall short of the real value as it is very hard to put a value on some of the following benefits of engaging a financial adviser on an ongoing basis:
However, there are other measurable benefits to engaging a financial adviser. A number of studies have been completed by Morningstar, Vanguard and Envestnet in recent years which place a value on ongoing Financial Advice. The table below summarises these findings. It assigns an annual percentage benefit of managed assets for clients who engage with financial advisers on an ongoing basis above individuals who do not. The services financial advisers provide are broken down into five core areas.
Each study breaks down the five core areas into multiple subsidiary services and a value is attached to each based on a set of assumptions. For example, if we consider asset management, the services outlined in the table below are the services identified as adding value and should form a key part of any financial adviser’s proposition.
As with any study, it is important to maintain a healthy level of cynicism, however, an average benefit estimated to be between 1.59% to 3.00% per annum is significant. While it may not seem like a large number, and one must remember an adviser’s fees have to be deducted from this figure, it can make a substantial difference to a client’s ability to achieve their financial objectives when this annual percentage is compounded over a long period of time. This is in addition to the more intangible previous mentioned benefits a financial adviser should also provide.
It is important to realise not all financial advisers operate in the same way. The value you receive will depend on the type of financial adviser you work with. Some advisers will focus solely on the area of investment and selling particular products while others, like Distinct Wealth Management, provide advice on a holistic basis taking into account an individual’s financial and lifestyle objectives. They help the client put a financial planning framework in place to assist them achieve their objectives and then partner with them to make those objectives a reality.