Added value of receiving financial advice rises to 5.8%

Mike Taylor

Managing Editor/Publisher, Financial Newswire

20 October 2022

Yet more research has confirmed the value of financial advice, with the latest Russell Investments research finding that the quantifiable value of a financial adviser’s contribution to their client’s portfolio has risen to 5.8%.

The fifth annual Russell Investments Value of an Adviser Report, confirmed the positive outcomes that advisers can deliver to clients, particularly during times of uncertainty.

It found that with respect to asset allocation alone, advisers deliver for their clients.

Commenting on the results of the research, Russell Investments Head of Adviser and Intermediary Solutions in Australia, Neil Rogan pointed to the challenges which have faced investors over the past two years, particularly the prolonged levels of volatility.

“In their role as a behavioural coach, advisers have helped their clients remain invested through the turbulence, preparing them for an uncertain future and working with them to determine their post pandemic goals,” he said. “This year, that aspect of an adviser’s role alone is responsible for 2.9% of portfolio value.”

Russell Investments explained that the value of an adviser calculation is drawn from five key elements: behavioural coaching (2.9%); appropriate asset allocation (1.6%); tax savvy planning and investing (1.3%); choices and trade-offs (variable); and the value of an adviser’s years of professional expertise (priceless).

It said that in 2022, advisers increased the performance of their clients’ portfolios by 1.6% solely by ensuring an appropriate asset allocation across their investments.

The Russell Investments analysis said that research suggested that asset allocation was responsible for more than 85% of an individual’s investment outcome – something which was often undervalued and under-appreciated.

It pointed out that more than 60% of superannuation savings in Australia’s $1.2 trillion pool of MySuper assets are managed to a single strategy asset allocation and that for a member in a single strategy default, this means adopting the same investment strategy as other members of their fund cohort, despite being of a different age or having a different super balance or retirement goal.

“As a result, many non-advised Australians suffer sub-optimal investment returns, and may conversely expose their portfolio to unnecessary levels of risk,” Russell Investments said.

“We believe that being in an asset allocation that is appropriate to an individual’s personal needs, as identified by their adviser, can be worth up to 1.6% p.a. in annual portfolio value, particularly in periods of market instability such as those investors are currently experiencing,” Rogan said.

The remaining 1.3% of quantifiable adviser value is drawn from tax savvy planning and investing. While commonly considered the responsibility of accountants, tax considerations are an important part of the advice process – 23% of investors consider tax effectiveness as one of their top three investment concerns.