VALUE OF AN

ADVISER

A is for Active rebalancing of investment portfolios

Without regular rebalancing, a client’s portfolio could become overly heavy in large capitalisation U.S. equities.

Over longer periods of time, this sort of shift can meaningfully change the risk and return potential of a portfolio. For example, if an investor had purchased a hypothetical balanced portfolio of 60% equities and 40% fixed income in January 2009 and it had not been actively rebalanced since then, by the end of 2021 the profile of the portfolio would be very different. That original balanced portfolio would have become a growth portfolio, with approximately 84% invested in equities and only 17% in fixed income. Such a huge imbalance could expose the investor to the risk of a significant drawdown if equity markets fell sharply.

When balanced becomes the new growth

The potential result of an un-balanced portfolio

Source: Hypothetical analysis provided in the chart & table above is for illustrative purposes only. Not intended to represent any actual investment. Source for both chart & table: U.S. Large Cap Growth: Russell 1000 Growth Index, U.S. Large Cap Value: Russell 1000 Value Index, U.S. Small Cap: Russell 2000^® Index, International Developed Equities: MSCI World ex USA Index, Emerging Markets Equity: MSCI Emerging Markets Index; Global Real Estate: FTSE EPRA NAREIT Developed Index, and Fixed Income: Bloomberg U.S. Aggregate Bond Index.

B is for Behavioural coaching

Pulling out of the market when it is falling can lock in losses and could lead to missing out on any subsequent rally. Without a crystal ball, it’s hard to time the perfect point to get back into the market once you have left.

As the following graph shows, missing out on even a few days of good performance can really hurt your portfolio. And the thing is—you can never predict when the market will have a good or bad day. The factors that affect market performance can range from stock-specific news to geopolitical events to newly released data (such as employment statistics) to even technical trading triggers. It’s best to just ride things out.

Although it’s scary when markets decline, it’s worth remembering that they do tend to go up over the longer term. In fact, the S&P 500 Index has risen 74% of the time since 1926[1]. Those are pretty good odds.

¹Source: Calastone Fund Flow Index.

² Source: Envestnet. https://www.envestnet.com/press/envestnet-moneyguides-latest-advisor-survey-finds-financial-planning-services-fees-rise

C is for Customised client experience & family wealth planning

If someone wanted a cookie-cutter, one-size-fits-all investing experience – at very little cost – they could use a robo-adviser. But a robo-adviser generally doesn’t provide a financial plan, ongoing service, or guidance; just the option for an investor to choose from a pre-selected list of funds, provide annual statements and a phone number to call in case of questions. This would be fine if all investors are alike.

Each investor has their own set of goals, circumstances, and preferences. And that is why we believe the customised client experience that an adviser can offer has significant value. At one time, an adviser was essentially a broker – selecting investments for clients. Now, most advisers are expected to provide holistic wealth advice for entire families. Indeed, between 2017 and the end of 2020, there has been a 39% increase in advisers providing comprehensive planning services³.

We have found that the value that advisers deliver through the customised experience is much higher than the cost of an automated service and cookie-cutter plan from a robo-adviser.

P is for Product alignment with goals

If every investor has their own goals, circumstances and preferences, then it stands to reason that each will require a different mix of products. But how can you provide that customised client experience when there is only an average of 1700 work hours in a year? That’s based on 35 hours a week over 47 weeks. And that’s not accounting for illnesses, additional holiday, conferences, meetings and other events that can take a bite out of the time you have available. Impossible, right?

Besides, we’ve already discovered that investors value advisers for their personalised service and want more frequent communication. So, it makes sense for you to provide the wealth management services and outsource the investment management. This is where the use of models can really help you free up time while still ensuring each of your clients gets the customised client experience they value.

The time you would have spent researching funds, meeting portfolio managers and analysts, tracking those funds, and conducting ongoing research is now available for you to spend time with your top clients - giving them the personalised experience they crave.

And with that personalised service, you will gain deeper insight into your clients’ goals, circumstances and preferences - making it more likely that the model strategies you choose will more closely align with the outcomes they desire.

Let’s say you outsource investment management to a firm that provides a selection of model strategies or multi asset solutions. A recent study⁴ has found that by doing so, a financial adviser could save 7.7 hours a week. Multiply that by the number of weeks worked in a year and you end up with an extra 360 hours – time you could spend with your family, or growing your business, or with your top clients.

Now imagine having an additional 7.7 hours to work with your top clients on their specific needs and deepening the relationship they have with you. How would that impact your business? The value to you is significant, but so is the value to them. If we estimate an adviser’s average hourly rate is £60 (based on annual revenue of £100,000 a year and a 35-hour work week), then the value of that additional time for each of your top 50 clients is £460.00. Based on a £300,000 account, that’s an additional 0.15% of value you can offer them just by outsourcing.

Hypothetical scenario for illustrative purposes only.

⁴Source:https://static.twentyoverten.com/5e0f642709752828dbb0c6e0/-mjyNOiwG/Outsourcing-Money-Management-article4.pdf, AssetMark, 2019. Accessed on Feb 3, 2021

Communicate adviser value

The waning of the pandemic, new geopolitical environment and inflationary pressures could be the perfect time for you to reassess the full value you deliver and how you communicate that value to your clients.

We know that many advisers worked hard through 2020’s challenges to keep in touch with clients and keep them invested. Our formula shows that even if advisers were only able to help their clients avoid the behavioural mistakes that many investors make in the face of the significant volatility we saw, advisers have already provided value above and beyond their fee. Add to that their other services, the active rebalancing, customised client experience advisers give clients and ensuring their portfolios align with their specific goals, and it seems clear that the value advisers deliver is significant.

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