Advisers’ benefit goes beyond financial returns

Financial advisers deliver 5.2% or more each year to their clients, according to Russell Investments, but the firm has highlighted the value of advice goes beyond just financial returns.

It said an adviser charging an advice fee of $3,250 to a client with a $250,000 balance could potentially deliver $13,250 of value.

However, there were numerous other ways that seeking advice benefited a client including preventing behavioural mistakes, and advising on asset allocation. Avoiding behavioural mistakes was the biggest benefit for clients ,adding at least 2.2% per annum to a client’s portfolio by stopping them from chasing past performance or making short-term moves.

This was particularly evident during the pandemic and market downturn as the firm found someone with an investment balance of $250,000 who moved to cash on 16 March would have locked in losses of more than $50,000 versus a member with the same balance who stayed invested during the volatility, recovering almost $20,000 already by the end of May.

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Tax effective investing was the next biggest contributor, representing 1.5% of added value.

In its ‘Value of Advice’ report, the firm said the five benefits were:

• A is appropriate asset allocation. Helping clients to work through their values, preferences and motivations from the outset.
• B is for behavioural mistakes. Helping clients avoid common behavioural tendencies may help achieve better portfolio returns than those investors making decisions without professional guidance.
• C is for cost of cash. Holding too much cash can come at a cost. Advisers can assist clients in investing in a well-diversified portfolio that seeks to balance the needs of liquidity and targeting growth within the risk levels appropriate to the client.
• E is for expertise. A common misconception is that financial advisers are purely investment managers, whose only job is to select investments and achieve a certain level of return – quality financial advice goes way beyond this.

• T is for tax-effective investing. Advisers play an important role in a client’s tax journey, helping them navigate key components when it comes to tax-efficient strategies.

Russell Investments 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”.