Russell Investments 2020 Value of an Adviser Report highlights the role advisers play in providing support, discipline and connection to clients during COVID-19
SYDNEY, 14 October, 2020: Russell Investments today released the results of its third annual Value of an Adviser Report, aiming to quantify the value that advisers provide throughout a client's investing journey. The 2020 report estimates that advisers deliver value of 5.2% p.a. or more each year to their clients in a relationship that extends well beyond investment-only advice.
The report outlines five key elements that make up the value of advice including preventing behavioural mistakes; advising on appropriate asset allocation; making investors aware of the cost of holding cash; providing advice on tax-effective strategies; and expert knowledge in additional wealth management services.
Russell Investments Director, Head of Business Solutions, Bronwyn Yates said, "We believe advisers have never been more valuable than during this challenging time. The pandemic has further strengthened the awareness of the value that advisers provide for their clients."
"We know some clients can experience sticker shock when they see advice fees for the first time. Our report shows that an adviser charging an advice fee of $3,250 to a client with a $250,000 balance can potentially deliver $13,250 of value – that's $10,000 extra value to the client. Our report aims to helps advisers move beyond a fee conversation and amplify their value creation capabilities."
Russell Investments developed the following formula to help advisers understand and communicate the full value of their services: A+B+C+E+T = value of an adviser. The formula is explained in the detailed report as follows:
- A is Appropriate asset allocation. Helping clients to work through their values, preferences and motivations from the outset.
- B is for Behavioural mistakes. Helping clients avoid common behavioural tendencies may help achieve better portfolio returns than those investors making decisions without professional guidance.
- C is for Cost of cash. Holding too much cash can come at a cost. Advisers can assist clients in investing in a well-diversified portfolio that seeks to balance the needs of liquidity and targeting growth within the risk levels appropriate to the client.
- E is for Expertise. A common misconception is that financial advisers are purely investment managers, whose only job is to select investments and achieve a certain level of return – quality financial advice goes way beyond this.
- T is for Tax-effective investing. Advisers play an important role in a client's tax journey, helping them navigate key components when it comes to tax-efficient strategies.
More than just investment management
Of the elements quantified by Russell Investments, an adviser's ability to help investors avoid behavioural mistakes, such as chasing short-term market volatility or chasing past performance, was the largest contributor, adding at least 2.2% per annum of additional value for their clients' portfolios.
"Our report shows advisers can play a critical role in helping investors avoid common behavioural tendencies and may potentially help their clients achieve better portfolio returns than those investors making decisions without professional guidance" said Ms Yates.
Russell Investments also observes that during the pandemic, many investors were fearful of loss as markets fell that they switched predominantly to defensive assets, or entirely to cash, just prior to the market hitting its March 17 low, locking in substantial losses.
The report estimates that for someone with an investment balance of $250,000, selling to cash on March 16 would have locked in losses of more than $50,000 versus a member with the same balance who stayed invested during the volatility, recovering almost $20,000 already by the end of May.
Advisers making tax-effective recommendations
Tax effective investing was the next biggest contributor, representing 1.5% of added value. While tax is often considered the realm of the accounting profession, an adviser can also provide expertise on managing and optimising investment tax for their clients.
Advisers can add significant value to a client through structural tax strategies to manage investment tax. This not only requires a close understanding of the client needs, but also knowledge of new innovative investment solutions that can help manage personal tax circumstances – such as managed account solutions.
In 2019, Russell Investments launched a ‘next generation' suite of multi-asset, managed accounts. Russell Investments Head of Wholesale Partnerships Neil Rogan said managed account solutions allow advisers to tailor an investment solution based on the taxation circumstances of an individual. The efficiency of managed accounts also allows advisers to spend more time engaging with clients.
Mr Rogan said, "While dedicated advisers are confronting challenges as volatility whipsaws many investors' savings, they also need to articulate that the value they deliver goes far beyond selecting and managing investments. By demonstrating to clients how the value they deliver exceeds the fees charged, advisers can improve client engagement and satisfaction at a time of extreme market uncertainty."
"We want advisers to know we stand with them during this unprecedented time and we believe advisers have never been more valuable."
A PDF version of the Value of an Adviser Report can be accessed here.
About Russell Investments
With more than 80 years of experience, Russell Investments is a global investment solutions partner, dedicated to helping investors reach their long-term goals. Russell Investments offers investment solutions in 32 countries, manages over $413.7 billion in assets (as of 30 June 2020) and provides consulting services on over $3.6 trillion in assets (as of 31 December, 2019). Russell Investments specialises in multi-asset solutions and investment and implementation services with a goal of delivering the best investment strategies, managers and asset classes to its clients around the world. Headquartered in Seattle, Washington, Russell Investments operates globally with 20 offices, providing investment services in the world's major financial centers such as New York, London, Tokyo and Shanghai.
Kirsty Timsans, Honner, 0403 782 752 or firstname.lastname@example.org.
Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 (RIM). This document provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. This information has been compiled from sources considered to be reliable, but is not guaranteed. Past performance is not a reliable indicator of future performance. This document is not intended to be a complete statement or summary of the Russell Investments Multi-Asset Managed Accounts. Investing in the Multi-Asset Managed Accounts has risks. You should consider these risks in light of your objectives, financial situation and needs.
RIM is part of Russell Investments. Russell Investments or its associates, officers or employees may have interests in the financial products referred to in this information by acting in various roles including broker or adviser, and may receive fees, brokerage or commissions for acting in these capacities. In addition, Russell Investments or its associates, officers or employees may buy or sell the financial products as principal or agent. Neither RIM, Russell Investments or its associates, officers or employees guarantees the repayment of capital, the performance of any Russell Investments products or any rate of return referred to in this document. Copyright © 2020 Russell Investments. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments.