A sharper focus on the value of advisers.
How can financial advisers reassess their value? Read our 2021 Value of an Adviser Report to learn more.Get the full report
We believe advisers provide real value to their clients, particularly during periods of significant change. Much of the work an adviser does is complex and happens behind the scenes, making it more difficult for clients to appreciate. Our Value of an Adviser Report is designed to help advisers and investors articulate and understand the full value of an adviser’s services.
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How an individual is invested has a huge impact on achieving their investment goals. There is significant research that suggests that asset allocation drives over 85%1 of the investment outcome for an individual. Yet, this critical step of an advice process is often undervalued and under-appreciated.
Appropriate asset allocation is not just about maximising returns, but also in managing risk. By risk, we mean volatility, which is often what causes investors to doubt their investment plan and pull money out of the market.
In periods of steadily rising markets, it can be easy to underestimate the value of a professionally managed portfolio. During these periods, we often see the asset allocation of DIY portfolios drift away from the initial asset allocation. A disciplined approach to portfolio management and rebalancing can ensure it retains its original asset allocation—and therefore remains appropriate for an investor’s stated goals—while also potentially reducing risk.
1 Russell Investments Making Super Personal White Paper 2020
For many investors, 2020 was their first experience of significant market drops and ongoing volatility. While volatility was somewhat dampened in 2021, it came back to the forefront in 2022.
These last two years have been a clear demonstration of the importance of remaining invested through thick or thin. An investor who fled for the exits in mid-March 2020 when the pandemic emerged, would have had a difficult time to find the best re-entry point, with no real market “dips” to take advantage of. Pulling out of the market when it is volatile can lock in losses and could lead to missing out on any subsequent rally.
As the following graph shows, missing out on even a few days of good performance can have a detrimental effect on a portfolio. While markets can be unpredictable, their long-term trend has been up. Investors who are guided by their advisers and stick to their plans are likely to benefit. Doing nothing can often be the better choice.
Cycle of Investor Emotions
When things are great, we feel nothing can stop us. And when things go bad, we look to take drastic action. Because emotions can be such a thread to an investor’s financial health, it’s important to know how to keep your head above water in the cycle of investor emotions.
DIFFICULTY OF MARKET TIMING: THE INVESTMENT IMPACT OF MISSING BEST MARKET DAYS
10 years ending 31 August, 2022
Source: Morningstar. Returns based on S&P/ASX 300, for 10-year period ending August 31, 2022. For illustrative purposes only. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
Advisers provide a holistic wealth management approach throughout a client’s financial life. In fact, most people’s lives invariably become more complex over time. To help achieve an individual’s goals, an adviser will incorporate many inputs into the design of a strategy.
Depending on an individual’s personal circumstances, preferences and considerations – there are a broad mix of these complex factors that require expert knowledge and advice to evaluate the choices and trade-offs at play, and what is right for their specific goals and needs.
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. The reality is that good financial advice goes way beyond this.
Of course, experience and expertise to navigate the technical aspects of investments, legal, tax, superannuation and insurance requirements are key to success. But a quality financial adviser also incorporates additional skills like effective communication, behavioural awareness and understanding to their offering.
We believe this unique combination of technical skill and emotional expertise provides a priceless form of value from an adviser to clients – leaving them feeling more secure, more prepared to deal with the unexpected and ultimately having peace of mind.
79% of Australians recognise that advisers have expertise in financial matters3.
3 ASIC financial advice: What consumers really think report 2019
Tax is often considered the realm of the accounting profession. However, an adviser can also provide expertise in managing and optimising investment tax for their clients. The concept of investment tax isn’t just limited to what goes into a tax return. Investment tax can have an impact on an asset’s value or on portfolio returns, even though it may not always be seen. As a result, it can be difficult for investors to know how to be tax-effective in their portfolios.
Providing a more tax-effective approach to investing is an area where advisers can distinguish themselves and demonstrate some of the more specific advice strategies that can deliver real gains to clients.
We believe that the value of an adviser for Tax savvy planning and investing is at least the sum of:
Tax effective strategies
The waning of the pandemic and the new geopolitical environment could be the perfect time for advisers to reassess the full value they deliver, and how they communicate that value to clients.
We know that many advisers worked with their clients over the course of the pandemic to stick to their investing path. Our formula shows that even if advisers were only able to help them avoid the behavioural mistakes that many investors made in the market turbulence, they’ve likely already provided value above and beyond their fee. Add to that their other services, appropriate asset allocation, the customised client experience and expertise given, and the savings from a tax-effective approach, and it seems clear that the total value advisers deliver is significant.