The Value of an Adviser: The importance of an experienced guide

Key takeaways:

• An adviser’s value to the investors who work with them is a lot like a guide taking travellers through an unfamiliar environment
• Advisers can help investors remain on the right path to their chosen destination and ensure they have everything they need for the journey
• An adviser’s guidance can ensure investors remain in the market through volatile times, can ensure the right asset mix for their goals and risk tolerance, and can help them minimise the tax bite, among other valuable services

There are certain items you should take with you when going for a hike in a forest: a torch, good boots and a GPS. But when you are venturing out on unfamiliar terrain, then it’s a good idea to make sure you take a trusted and knowledgeable guide as well.

When navigating the unknown, an experienced guide can ensure you don’t veer off the path to your chosen destination, can prevent you from stumbling over hazards, and ensure you have the tools you need to finish the journey safely and soundly.

If you are travelling through an unknown environment, you don’t really know exactly what may be around the corner. This goes for the financial markets as well as that hypothetical forest. In our view, a financial adviser can serve as a trusted and knowledgeable guide and can help investors be prepared for a variety of potential obstacles.

This is one of the many reasons why Russell Investments believes in the value of financial advisers. Their role as a guide through the investing journey—turbulent market environments, major life changes, evolving needs and goals—has significant value since it is that guidance which often allows investors to arrive safely at their chosen destination.

Every year we take a closer look at that value using the simple formula we developed 8 years ago and update annually:

Our formula has been refined over the years as the role of an adviser has evolved. Initially, an adviser was essentially a stockbroker. Now, many not only create and continually review an individualised financial plan, they can spearhead a network of experts to provide customised wealth management services for entire families. We believe the value of an adviser has increased as the various roles they play have broadened and deepened.

Our Value of an Adviser formula consists of five key elements in an adviser’s total value proposition: asset allocation to ensure the investor’s portfolio is designed to meet their financial goals while remaining aligned to their risk profile; their role as a behavioural coach to keep clients invested through thick and thin; their role in guiding clients and families through tough financial choices and trade-offs during the many stages of their financial life; their unique combination of technical and emotional expertise; and lastly their tax-smart planning and investing to help investors keep more of what they earn.

Asset Allocation

An adviser will work with their clients to determine the optimal mix of assets to help them reach their financial goals at an appropriate level of risk for their financial goals. They will work to keep their clients fully invested in order to take advantage of market opportunities, and ensure they diversify their risk and return.

Behavioural Coach

An adviser will ensure that clients stick to their chosen path even when the trail appears treacherous. They’ll keep an investor’s impulses in check, especially when markets are volatile. Left on their own, many investors may try to time the market, which could lead to missing out on rebounds.

Choices and Trade-offs

As clients progress through various life stages, from accumulating assets in early adulthood, to focusing on other considerations in middle age, and finally managing their affairs in older age, the nature of their financial needs evolves. With cost of living pressures, juggling difficult life decisions can be eased with the guidance of a financial adviser, who can help identify opportunities or compromises to achieve desired outcomes.

Tax-Smart Planning and Investing

Tax expertise sits alongside market knowledge and estate planning as among the central pillars of financial advice. While it is perhaps most obvious in superannuation due to the potent tax-effective investment strategies advisers can use for working age clients, it is required to deliver on all aspects of the services that advisers offer –including investment strategies and social security assistance.

The Bottom Line

Much of the work an adviser does is complex and happens behind the scenes, making it more difficult for clients to quantify and appreciate. Our Value of an Adviser report is designed to help advisers bring the results of that work to the forefront so they can demonstrate the full value of the services they provide.

At Russell Investments, we believe in the value of advisers. We see the potential advantages you create for your clients. We know the commitment you bring to your relationships. Our annual study confirms and quantifies that dedication.