According to the global investment manager, Russell Investments, they offer a lot more benefits than just financial advice.
We know from experience that there are many tangible and intangible benefits that a great advice relationship can provide a client. In their latest Value, an Adviser report Russell Investments was able to quantify the tangible investment benefits, finding that a financial adviser provides more than 5.2 per cent per annum (pa) in extra value to a client’s investment journey.
And, this extra value uncovered five key benefit areas financial advisers provided their clients.
These included appropriate asset allocation; preventing behavioural mistakes; making investors aware of the cost of holding cash; providing advice on tax-effective strategies; and offering expert knowledge plus wealth management services.
Russell Investments Director, Head of Business Solutions, Bronwyn Yates said “Our report shows advisers can play a critical role in helping investors avoid common behavioural tendencies and may potentially help their clients achieve better portfolio returns than those investors making decisions without professional guidance,” Ms Yates said.
Bronwyn Yates recognises that some DIY investors and clients are wary of financial advice fees, questioning if they’re really worth it. When looking at the research, Bronwyn believes the fees are indeed worthwhile, with clients potentially gaining three times more in value.
“We know some clients can experience sticker shock when they see advice fees for the first time,”
“Our report shows that an adviser charging an advice fee of $3,250 to a client with a $250,000 balance can potentially deliver $13,250 of value – that’s $10,000 extra value to the client.” She added.
From our perspective, that is only one piece of the value puzzle. The biggest gain our clients receive is peace-of-mind and clarity for the future. By working with us, you will be clear about what is most important to you and where you are on the journey towards those dreams and goals. Additionally, you can rest easy knowing your wealth is protected should an unforeseen event happen in your family’s lives. But seeing the investment returns stand on their own only adds to the value equation.
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So, let’s look at these five benefits to understand the value and exactly how a financial planner can help you squeeze more from your investments, and help you live your best possible life.
A costly mistake a DIY investor can make is by not having an appropriate asset allocation when building their investment portfolio.
Many lack the skills, knowledge or time to research the various investment options out there and to clearly understand what would best work to achieve their objectives and needs.
Also add the temptation to chase performance, overreact to market events and succumb to the likes of FOMO (fear of missing out) type behaviour – these can impact one’s strategy and how you profit.
By having a financial adviser on your side, they bring the necessary skills to construct well-diversified portfolios, which is a key contributor to healthy long-term returns. They also have access to funds and strategies that everyday investors likely don’t have.
At Invest Blue, we recently launched a wealth management offering that brings institutional-grade investment opportunities to the families we work with. This is unique in the Australian wealth market and helps to bring the costs of actively managed investment portfolios down to an affordable level.
Learn more about how we can help you manage your wealth and determine your own philosophy to investing here.
CASE STUDY: Big differences in asset allocations
Reviewing the average returns of Australian equity and bond portfolios over a 20-year period reveals those who held 70 per cent of their portfolio in growth assets and 30 per cent in defensive had an average yearly return of 9.0 per cent.
But if you held just 30 per cent growth assets and 70 per cent in defensive, it would deliver an annual return of 8.1 per cent.
This is where it gets interesting…
If you were a young investor (typically more risk-averse as found by Deloitte) and invested conservatively instead of the growth option, you would have missed out on an average of 0.9 per cent each year for 20 years.
On a $100,000 investment that’s over $85,000 missed.
Emotions play a significant role in investing, and without the right mindset and technical expertise, you can get caught out by your own behavioural biases.
That’s why financial advisers are important. They not only provide investment advice but behavioural coaching to guide you in the right direction to meet your long-term goals – especially during volatile periods.
CASE STUDY: Reactive COVID-19 investing
During the pandemic, super funds recorded a flurry of activity, with members de-risking or switching their investment strategy.
When markets went into free-fall they got spooked and switched to predominantly defensive assets, or entirely to cash, just prior to the market hitting its March 17th low, locking in substantial losses.
It was found that someone with an investment balance of $250,000 who sold on March 16 would have lost more than $50,000 compared to a member with the same balance who held firm during the COVID-19 volatility, recovering almost $20,000 by the end of May.
Learn more about avoiding the pitfalls of psychology and money
You may think ‘cash is king’ due to the sense of security and planning certainty it provides.
However, did you know that holding too much cash for too long can have a negative impact on your investment portfolio?
Known as ‘cash drag’, this situation can limit your overall performance and prompt investors to miss out on potential growth opportunities. By sacrificing that growth today could mean fewer assets in the future and therefore less spending power over the longer term, particularly in retirement.
Financial advisers understand this and work with you to invest in a well-diversified portfolio that seeks to balance your liquidity and growth, suitable for your stage of life and goals.
If you are considering a ‘cashing-in’ an investment, consider when to pull out of an investment.
When it comes to your financial dreams and goals, it’s comforting to know a professional has your back.
With a financial adviser, you get access to this – expert knowledge, skills and the latest research to create a tailored plan to help you on your investment journey.
Firstly, you gain time back as advisers, and their broader team of experts cover hours administering your financial matters, evaluating the best strategy and researching various platforms, investments solutions and insurance providers available to you.
Secondly, they offer various wealth management services such as tax and estate planning, investment and cash flow analysis, retirement income planning, assistance with annual tax return preparation and one-off custom requests – you’ll gain valuable efficiencies in your personal life.
And finally, during stressful periods including redundancy, personal trauma and inheritance or business transactions, they can provide support and the expertise to help identify the best path forward. This is also the case with any legislative changes and tax treatment of super or other asset changes that can affect your portfolio.
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Everyone wants to maximise their tax savings, but some don’t know how – this is where an adviser can play a key role.
Financial planners can assist in several ways, including structural tax strategies, managing client-driven trading, and making portfolio recommendations that are tax-efficient to you.
They also stay up to date on relevant tax changes that can impact your financial position and work closely with accountants and solicitors on specific and complex matters, to ensure no unexpected surprises come tax time.
When you look at the above benefits and an extra 5.2 per cent in value per year a financial adviser can provide clients – it’s hard to argue.
Long term financial planning involves a lot of time, expert knowledge, constant research and a strong mindset to stay on track.
At Invest Blue we understand this and are passionate about helping people live their best possible life.
That’s why our approach is focused on getting to know clients on a personal level, helping them to identify what is truly important to them, and then working with them to realise their dreams and goals for the future.
We have a strong team of professionals who, as well as having years of experience, have high levels of expertise and can provide the tailored advice to steer you towards your desired financial position.
Want to maximise the value of your investments? Get in touch today so we can help you start living your best possible life.
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What you need to know
This information is provided by Invest Blue Limited (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
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