Each year, Russell Investments’ releases a report that aims to provide a holistic view of what advisers do for their clients and the value their contribute. The latest report has revealed that Australian’s receiving financial advice on average accrue $559,000 more over their lifetime than those who are not receiving any advice.
Additionally, the report calculates that advisers deliver value of 4.4% annually to their clients beyond just investment-only advice. This helps dispel the notion that financial advisers are no more than portfolio managers that simply allocate their client’s money in an effort to achieve a return on investment.
Specifically, Managing Director of Russell Investments Jodie Hampshire explains that advisers provide value beyond just investment with regards to the “technical and emotional guidance they provide”. He goes on to state that “advisers have never been more valuable in Australia”.
As a result of the royal commission advisers have been under greater pressure to demonstrate the value that they provide and as explained by Jodie Hampshire, this report helps highlight that the “the value of an adviser far exceeds the amount they are charging their clients”.
In calculating the value of an adviser, Russell Investments’ looks at five key areas. These are annual rebalancing, avoiding behavioural mistakes, the costs of adopting the wrong investment approach, the benefit of planning and tax-smart investing.
Looking at behavioural traits, the report identifies 200 behavioral traits that could negatively impact your return on investing. By avoiding just one of these traits, namely ‘herd mentality’, advisers can add an extra 1.9% value per annum to their client. Herding, referring to the mentality where investors simply copy those around them and fail to make independent decisions.
When looking at adopting the wrong investment approach, the report shows that for younger clients having a portfolio that is more risk tolerant and focused on growth and then adapting this over time can help add 1.6% value each year.
Moreover, the report demonstrates the benefit of tax-smart investing, which Managing Director Jodie Hampshire said that Russell Investments has valued to be worth between 90 and 120 basis point per annum.
Overall, this report helps clients to understand the value that they can receive from their advisers that far exceeds what they pay in fees. It also shows that financial advisers are much more than simply investment managers and provide tangible value in the technical and emotional support they give their clients.