The case for the human element in advice: Vanguard

Having an adviser could increase a client’s peace of mind by over 50% along with adding portfolio and financial value, according to research.

A Vanguard survey of over 1,500 advised clients found 24% had peace of mind in managing their own investments. However, their mental wellbeing soared to 80% with the help of a human adviser, delivering significant emotional value including behavioural coaching, confidence, and a sense of accomplishment.

“Traditional economics assumes people are rational but in reality, behavioural biases exist and we tend to have less self-control than we believe – so that’s where financial advisers can step in and help,” said Paulo Costa, Vanguard’s senior behavioural economist. 

“Advisers can harness the human element of financial advice and provide the emotional value clients most appreciate: coaching them through macroeconomic changes such as rising interest rates, keeping them on track to meet their investment goals, and being a trusted consultant”. 

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The respondents, all of whom had a minimum $100,000 of investable assets, reported a 5% perceived portfolio value added by an adviser, compared to average returns without an adviser.

Vanguard’s survey also sought to measure the perceived difference, if any, between using a human adviser and receiving digital advice. 

The majority said a human adviser would be empathetic to their personal situation and needs (75%), made them feel like their retirement goals were understood (73%), and developed a meaningful connection (76%).

“This emotional value is really the things we cannot get with mathematical models or assumptions, like happiness in the home or the ability to sleep well. They are hard to put a dollar amount on,” Costa elaborated.

“[Financial] goal discovery, connecting with the client and creating that relationship – those are things that are not going away any time soon.”

However, there were other aspects of the advice process where clients saw value in using technology, specifically for portfolio outcomes and functional tasks.

Simplifying information for organised, cohesive management was the top service clients preferred to be delivered by a digital adviser (42%) followed by preventing details from being overlooked (41%) and managing taxes or capital gains effectively (40%). 

This embrace of technology spanned generations, with Vanguard’s research noting people of different generations, and of different wealth levels, held similar opinions with regards to digital advice and technology.

“People agree on what the human element of advice is, which is reassuring as that means advisers don’t need to tailor their practice for different client segments,” Costa added. 

A lot of advisers were increasingly becoming aware of how digital tools could help transform their practice, noted Rachel White, head of financial adviser services.

“A lot of advisers recognise [that] digital advice could be implemented into their practice to make them more efficient and serve more clients,” she told Money Management. 

This seemed to be the sentiment at Vanguard’s annual adviser roadshow, White added, which saw more than 1,400 advisers attend across Perth, Adelaide, Melbourne, Sydney and Brisbane.

“There is an issue with accessibility to advice, and being able to harness digital elements could help bridge this gap. At the roadshow, there was an adviser who said he is getting seven leads a week, and is having to turn most of them away.

“If we could get to a place where advisers could actually provide more advice to different clients with different needs […] then that’s a win for Australians,” she stated.