As World Values Day was celebrated globally on 15th October, it is worth thinking about the value of financial advice.
There is more to the role of a financial adviser than providing investment advice. Rather than choosing the right investments and savings products, the real value of financial advice is making informed decisions, and avoiding costly mistakes.
An independent study by Vanguard set out to quantify the value of financial advice. It found that clients with a financial adviser earned, on average, around 3 per cent more from investments than those without one, fund performance aside. Other studies back up these findings, including the well-known DALBAR study which revealed that the average DIY investor underperforms by around 3 per cent each year due to poor decision making.
Whilst 3 per cent per year may not sound significant, it does add up over time. For example, if you had £250,000 worth of investments, over the course of a year on average, you may see growth of 5 per cent. Over 15 years, this would see your investments grow to £495,000. With a financial adviser on board, however, factoring in the 3 per cent added value, that very same investment would grow to £734,000, almost £240,000 more. Now that’s significant!
Both the studies demonstrate that avoiding costly mistakes, such as choosing to sell at an inopportune moment, taking too much risk or overpaying tax, are more damaging than failing to select a better performing investment.
What is the value in working with a financial adviser?
Working with a financial adviser can prove beneficial in a number of ways:
Helps you set objectives
A financial adviser will help you set out objectives for your investment. They will put together a well-planned investment policy statement and will ascertain the right type of investments for you based on your attitude to risk, the timeline for your goals and your individual circumstances. This will ensure that you achieve your objectives within your required timescale.
Regularly reviews your investment portfolio
It is important to rebalance an investment portfolio on a regular basis, so that the optimum mix of investments is maintained. This may involve selling some to finance the topping up of others. Financial advisers review portfolios objectively and with expert skill, which is invaluable when it comes to ensuring the very best returns.
Manages costs
Investments come with costs, and every outlay you make will eat into your returns. A financial adviser will be able to keep your charges down by providing access to institutional investments that carry lower costs. This way, you will get to retain a higher proportion of an investment returns.
Mitigates tax
Taxes have the potential to drain investment returns. One of the key values of financial advice is that you will be advised on which types of accounts will work best based on your individual tax position. Financial advisers will consider the rate of tax you pay now, and consider future implications for when you withdraw the funds ensuring there are no unwelcome surprises.
Makes a withdrawal plan
A withdrawal plan is vital if you are going to reap the very best rewards from your investments. Deciding which account to withdraw from and which investments to sell is not straightforward, and this is where a financial adviser can add considerable value. They will come up with a personalised strategy to ensure your withdrawals are as tax efficient as possible, and that you retain the right blend of investments.
Manages your investment income
Investments produce income, for example some will produce dividends. Unless you reinvest this income, the funds will sit idle, giving you no return. A financial adviser will expertly reinvest any income that comes out of the portfolio, as well as determining which investments are best to sell should you need to withdraw funds.
Partridge Muir & Warren: Adding Value to Your Investments
PMW has been providing independent financial advice and investment management services across Surrey since 1969. As chartered financial planners, we have been acknowledged for our dedication to the industry and superior client care standards.
Our expert team of chartered financial advisers, investment administrators, tax advisers and legal specialists work together to protect your wealth, helping you achieve your personal financial goals and adding value through financial advice.
If you would like to learn more about how we can add value to your investments, we welcome you to get in touch with our friendly, expert team.