A is for Appropriate Asset Allocation

Asset allocation is at the heart of every investment strategy, determining more than 85% of the outcome for an individual ahead of the selection of the actual assets within a portfolio.¹

It is also, though, perhaps the most underestimated element of financial advice by the general public. Retail investors are more inclined to remember the returns of individual stocks – such as this year’s gains from the so-called magnificent seven AI stocks – than how asset allocation laid the foundation for overall risk-adjusted returns.

Russell Investments’ analysis shows that carefully considered asset allocation which takes into account the needs of an individual can add value of up to 1.2% per annum.

¹ Russell Investments Making Super Personal White Paper 2020

is for Behavioural coaching

More than ever, advisers are helping clients navigate the emotional side of their financial affairs as much as the technical aspects.

A series of unexpected events over the past five years – including COVID-19, the Ukraine war, US banking crisis and surging interest rates – have tested nerves time and again as market volatility pushed the values of portfolios temporarily lower.

Advisers, however, have played a crucial role in ensuring people understand that both the GFC and COVID-19 proved the adage that an investor with a properly constructed portfolio can weather such extreme periods of volatility.

C is for Choices and trade-offs

The role of advisers as financial coaches whose work extends beyond the selection of investments to holistic wealth management is not always understood. However, the growing complexity of regulation, family situations and social security means it is increasingly invaluable.

The inputs into this advice changes as clients’ age and go through typical life stages, from early adulthood when they are accumulating assets to late middle age when other considerations come into play and, finally to older age when their affairs take on an added dimension.

More people will fall into the latter category over the next 40 years, with the 2023 Intergenerational Report forecasting the number of Australians aged 65 and over will more than double. Those aged at least 85 are forecast to more than triple and the number of centenarians is expected to increase six-fold.²

² Intergenerational Report Factsheet

is for Expertise

Advisers are more than financial technicians. They are also specialists in human behaviour who build trusted relationships with clients that allow them to deliver on their recommendations.

In the best of times, advisers help clients achieve life-long goals and celebrate personal milestones along the way. But they also support people in challenging times – through trauma, illness, financial crises, job loss and death.

The unique combination of technical skill and emotional expertise demonstrated by advisers provides a priceless form of value to their clients.

³ https://russellinvestments.com/us/blog/bulls-vs-bears-2.

T is for Tax savvy planning and investing

Tax knowledge is as much part of an adviser’s role as a grasp of markets or estate planning. In fact, the importance of tax know-how becomes more critical every year.

This is perhaps most obvious in superannuation due to the continued introduction of caps designed to limit the amount of capital that people can hold in tax-effective retirement funds. But it is equally important outside superannuation, in both investing and social security.

Communicating adviser value

Continued economic uncertainty and geopolitical tension provide an ideal time for advisers to reassess the full value they offer to their clients – and to articulate it to them clearly.

This is the premise behind Russell Investments’ simple Value of an Adviser formula. It was developed to allow the industry to demonstrate the many facets of the services it offers in an at-a-glance format for the lay person.

Many advisers have worked with clients during recent market volatility to help them stick to planned investment strategies and navigate other areas of their financial affairs. The Value of an Adviser formula shows that even if advisers were only able to help people avoid common behavioural mistakes, they have likely provided value above and beyond their fees.

But once their other services are included – asset allocation, expertise, and tax planning – the total value of advice is clearly significant.

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