Does Independent Financial Advice Deliver Better Outcomes?
This article does not go into all of the reasons (of which we believe there are many!) why it makes sense for consumers and business owners to avail of independent financial advice. We hope that we demonstrate these to you every time in our dealings with you!
Instead, this article brings a more scientific approach to answering this question. It refers to 2 separate pieces of structured research that have been carried out in this area, each carried out with the aim of identifying whether people who received advice achieved better outcomes than those who did not.
The most recent research in this area was commissioned jointly by the Professional Independent Brokers Association and Standard Life. It was conducted by Research Plus among 1001 adults aged 18+ across the Republic of Ireland. The results were very interesting in that they identified three key findings;
- Those who get financial advice have pensions that are 53% higher on average.
- Those who get financial advice have 14% more life cover
- Those who get financial advice have on average 80% more savings and investments.
Of course there could be many reasons for these findings. People who avail of the services of an independent financial adviser may have a greater propensity to save and invest? But this on it’s own does not explain the difference.
To help us answer this, we refer to a very comprehensive independent study carried out in Canada on households back in December 2010, comparing the financial outcomes of advised versus unadvised clients. The study was conducted on over 10,000 households, with a follow up survey on approximately 3,600 of these conducted six months later. The Canadian Centre for Interuniversity Research and Analysis on Organisations carried out the research.
The first finding was in relation to the amount of financial assets for households that use an adviser versus those that don’t. Households that use a financial adviser have significantly larger financial assets – in fact the results showed a multiple in excess of four times higher!
One again could be sceptical and pass the findings off as being that those consumers with money go to advisers, while those with fewer resources just go it alone. However, more importantly, this report draws a link between advice and greater financial assets. The study considered the direction of causality — i.e. that wealth follows the advice rather than the other way around.
On average, participants that used an adviser achieved a 173% greater increase in financial assets over those without an adviser, assuming the same starting value of assets and a greater than 15 year time period! There was similar outperformance over shorter time periods too!
To achieve 173% over a fifteen year time horizon would require a 7% p.a. compound return. Other studies have suggested that the addition to return from the better choice of funds adds about 3% p.a., so the study suggests the extra return arises out of a combination of better fund selection, increased savings rate, better diversification and greater tax efficiency. This is the value that your independent financial adviser helps to deliver!
The study also found that the increase in the value of financial assets as a result of using a financial adviser begins to be seen after four years. Specifically it found that for participants that used an adviser for 4-6 years, financial assets were 58% greater than for non-advised households. The difference in financial assets is explained by higher household savings rates (for advised households) and increased allocation to non-cash investments.
So this is the hard data that demonstrates the value that an independent financial adviser can bring to the management of your financial affairs. But of course your adviser offers many more benefits;
- Helping you to identify all of your financial goals and objectives.
- Building a risk appropriate portfolio to help you achieve your desired outcomes in a controlled manner.
- Finding the very best products in the market to help you achieve your objectives.
- Staying abreast of all the changes in personal taxation, products and other market developments to identify opportunities for you.
- Regularly reviewing your portfolio to ensure you stay on track to achieve your goals.
In short, we’re there to help you protect yourself and your loved ones from financial shocks, to help you grow your financial assets and to provide for your retirement in a tax efficient manner. And as demonstrated in the research, to deliver much more favourable outcomes to you in the process!