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:
- It allows you to adapt your plan as your situation and
needs change - It constantly refocuses your mind on what it is you
are trying to achieve and allows you to make changes if you don’t feel you are
on the right course
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 info@depledgeswm.com 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.
