Revealed: The value of financial advice

It probably won’t surprise you to learn that we believe passionately in the benefits of financial planning. From giving you the confidence to live your life, to the pounds and pence returns that are generated, there are countless reasons why we believe clients benefit from advice.

Now, a major report has looked at the specific value of financial advice and quantified just how much better off individuals who took advice are, compared to those who didn’t.

Read on to find out just how much value financial advice can add.

New survey quantifies the value of advice

To try and identify the benefits of financial advice, insurer Royal London commissioned the International Longevity Centre (ILC) to undertake detailed statistical analysis to try and isolate a pure ‘advice effect’.

The ILC did this by using the government’s Wealth and Assets Survey. This interviews the same group of people every two years, asking them about their personal characteristics and various forms of wealth. Crucially, it also indicates which people in the survey took expert financial advice.

The financial benefits of taking financial advice

As part of the study, the ILC looked at the overall pension and non-pension wealth of people who took financial advice compared with those who did not.

When it published its first report in 2017, it found that the wealth uplift from taking advice was around £40,000 over a decade up to 2012-14.

Now, adding a further two years to the study, the research revealed that receiving professional financial advice between 2001 and 2006 resulted in a total boost to wealth (in pensions and financial assets) of £47,706 in 2014/16.

In terms of financial assets, the benefit of financial advice is now £16,715 in 2014/16 compared to £13,888 in 2012/14, with a greater impact for affluent clients.

The study also found that financial advice increases the probability of having savings by 4.1%.

Taking the pension and financial wealth figures together, the report previously found that receiving advice provided an average total wealth boost of £42,486 in 2015 terms. The new analysis has found that the total value of financial advice is now £47,706.

So why do advised clients end up better off than non-advised clients?

The single biggest explanation was that those who take financial advice are more likely to adopt appropriate levels of risk and, over the medium term, benefit from higher returns.

Unadvised clients, by contrast, tend to be too cautious, putting their money in cash ISAs and other low-risk, low-return assets.

Former Pensions Minister, Steve Webb, welcomed the study. He said: “I am pleased that the updated research again demonstrated a significant wealth uplift from taking advice. It also found, again, that the proportionate uplift from taking advice was greater for those of more modest means. Financial advice is good news, and not only for the already wealthy.

“At a time when critics of financial advice are easy to find, and when some in the industry have given them easy targets, it is good news that we have up-to-date hard evidence of the benefits of advice.”

The emotional benefits of taking financial advice

A 2019 YouGov poll for Financial Planning Week revealed that the majority of people don’t know or understand the benefits of financial advice. 22% of respondents to the survey said they didn’t know what the benefits might be, and 36% could think of no benefits.

Clearly, there are financial benefits to taking advice, as we saw above. However, there are also more intangible benefits of engaging with a professional planner.

One of the immediate benefits of sitting down with an adviser is that you’ll be forced to think hard about what it is you want to achieve with your money beyond simple investment returns.

A financial planner will encourage you to set financial goals. Do you want to own your own home? Do you want to pay your child’s school or university fees? Or do you want to retire early? A financial planner will look at your overall goals and help you devise a realistic, achievable plan to turn them into a reality.

A financial planner is also committed to reviewing your plans on a regular basis. Financial advice is not a one-stop process: indeed, you can expect to meet with your planner every six to 12 months.

The benefits of this are twofold:

The ILC study also found that fostering a close and ongoing relationship with a financial adviser can lead to better outcomes. Those who reported receiving advice at both time points in our analysis (around 8 to 10 years apart) had nearly 50% higher average pension wealth than those only advised once, at the start.

Steve Gazzard, CEO of the Institute of Financial Planning says: “It’s a major concern that so many can’t even understand how professional advice might help them.

“Those who have taken professional advice and have a comprehensive financial plan in place regularly report that the major benefit is that they have ‘peace of mind’, are better organised, and more confident when it comes to their money.

“It’s not just about getting a decent return on your money, it’s about knowing that no matter what life or the economy throws at you, you’ve got a plan in place to deal with it and keep you on track to achieving your goals. It puts you in control of your life.”

Get in touch

Want to find out how financial planning can add value to you? Get in touch. Email or call (0161) 8080200.

Please note

The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be regarded over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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