W
L
CALCULATING THE VALUE
OF FINANCIAL ADVICE
by Sam Hulson of First Equitable
The start of a new year - or in this case a new decade – provides an
opportunity to think about our goals and objectives. If you have
any specific financial planning goals, you may be considering
whether this is something you feel comfortable to set about
yourself or whether there would be value from enlisting the help
of a financial professional? percentage points to the probability of investing in equities. For
non-advised clients there can be a tendency perhaps to become
hesitant and procrastinate over what they should do. The default
is often to hold large cash positions which can be costly over time
simply due to inflation – never mind missing out on the potential
for larger investment gains.
Quantifying the value of financial advice has always been a
challenge because people who receive financial advice have different
characteristics to those who do not. But what if it was now possible
to quantify the value of financial advice and isolate a pure ‘advice
effect’? This is exactly what the researchers at the International
Longevity Centre – UK (ILC) have been able to calculate. LARGER PENSION POTS
The research also found that those who were still taking advice at
the end of the period had pension pots on average 50% higher than
those who had only taken advice at the beginning of the period.
However, this result is not controlled for other differences in
characteristics, so may at least in part reflect greater engagement by
those who have larger pension pots.
HOW MUCH IS IT WORTH?
The new research[1], ‘What it’s worth: Revisiting the value of
financial advice’ from the ILC suggests that, holding other factors
constant, those who received advice around the turn of the
millennium were on average over £47,000 better off a decade later
than those who did not. This result comes from detailed analysis of
the Government’s Wealth and Assets Survey, which has tracked the
wealth of thousands of people over two yearly ‘waves’ since 2004
to 2006. The wealth uplift from advice comprises an extra £31,000
of pension wealth and over £16,000 extra in non-pension financial
wealth. Worth considering then?
IMPACT OF TAKING ADVICE
One of the key findings from the research is that the proportionate
impact of taking advice is greater for those of more modest means.
For the ‘affluent’ group identified in the research, the uplift from
taking advice is an extra 24% in financial wealth compared with
35% for the non-affluent group. On pension wealth, the uplift is
11% for the affluent group compared with 24% for the non-affluent.
In either case, the uplift was of genuine positive significance.
One important explanation for the improved outcomes for those
who take advice is that they are more likely to invest in assets
which offer greater returns (though with higher risk). Across the
whole sample, the impact of taking advice is to add around eight
International Longevity Centre Director, David Sinclair,
commented: ‘The simple fact is that those who take advice are likely
to be richer in retirement. But it is still the case that far too many
people who take out investments and pensions do not use financial
advice. And only a minority of the population has seen a financial
adviser.’
HELPING YOU TO ACHIEVE YOUR GOALS
Having a financial plan in action is one of the most important things
you can do in life. It gives your finances direction and gets you closer
to your goals. What is equally important is reviewing and revising
your plan regularly. When it comes to managing your money, we
can help you build wealth and secure your future and, above all else,
draw up an effective plan for fulfilling your investment objectives.
Please contact us for further information. You can also email me at:
[email protected]
Source data:
[1] ‘What it’s worth: Revisiting the value of financial advice’ was published on 28
November 2019 at http://www.ilcuk.org.uk and http://www. royallondon.com/
policy-papers.
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