Is financial advice worth the money? Assessing the value of any professional service can be tricky. How can you work out if you’re getting good value if the potential rewards are not immediately apparent?
Competence and skill
Like most people, I can wield a paintbrush. I’m usually happy enough with my decorating efforts, but I’m no expert. I’ve had the occasional disaster: an unexpected colour and less than perfect edges. DIY may give me a sense of satisfaction, but I know a professional person would have done a great job!
No such thing as a free lunch
As you’d expect, there’s a cost associated with financial advice. Financial advisers are professional people with expertise and skill. So, what should you expect to pay?
Financial advisers used to get paid commission from product providers, and the cost was passed on to customers. Since the Retail Distribution Review in 2012, advisers must charge clients directly. There’s no legal or regulatory requirement to publish fee information, but a good adviser will clarify their charging structure and provide a quote. Financial advisers must describe what work they will be doing for you and explain the charges for those services.
Financial services are highly regulated. You’ll see warning notices wherever financial services are advertised. Perhaps most common is the statement, “The value of your investment can go down and up, and you can get back less than you originally invested.” Cautionary statements like this may have deterred you from taking professional advice.
You should consider engaging a financial adviser if you have a pension or savings and any of the following statements resonate with you:
- My free time is precious, and I love to spend it with family and friends
- My skills and knowledge lie in other areas – I’m not a financial services expert
- I understand the benefits of using a professional financial adviser, or
- I want to understand the value of professional financial advice
Your chance to choose
A referral from a trusted professional or financially savvy friend or family member is a good starting point. If you are looking for specialist advice, e.g., pensions, investments or long-term care, check that your adviser has all the relevant qualifications and knowledge.
Like many financial advisers, I offer an initial meeting free of charge. We need to get to know one another. A good adviser will be happy to talk about their qualifications and background and won’t be offended if you ask to see evidence and certificates. Experienced advisers will understand that you need reassurance – if they don’t give you a good feeling almost immediately, chances are they’re not suitable for you. Ideally, you’re at the start of a long-term professional relationship. I think it’s worth taking the time to get it right.
Valuing added value
A study by think tank ICL-UK and insurer Royal London found that individuals receiving financial advice are better off by £41,099 in investments and pension wealth when compared to people who don’t take financial advice. While those who seek financial advice are likely to be relatively better off than those that don’t, it’s clear that quality financial advice adds value above and beyond its cost.
A few years ago, some fascinating research by investment provider Vanguard attempted to quantify the value added by a good financial adviser. Vanguard identified seven components of an ‘Adviser Alpha’. These were asset allocation, rebalancing, lowering costs, behavioural coaching, tax allowances, spending strategies, and total return versus income.
Vanguard’s report quantified the cumulative value added through these seven critical components at around 3% a year in the US. Compared with typical financial adviser fees, I suggest this represents excellent value for money even where fees are at the higher end of the charging scale.
Let’s use one of these components to explain how financial knowledge, skill and expertise can add real value:
Behavioural coaching means helping investors avoid the costly mistakes of giving in to fear or greed during periods of market volatility. For example, in March 2020, many investors were tempted to exit when the Standard and Poor 500 Index fell by 33.8%. The index rebounded 17.6% in the following three days and returned 18% by the end of the year. Only those who remained invested benefited from the rebound and the returns.
Next steps
If you’ve been wary of taking financial advice because you think it will be expensive, let’s have a chat. I’d love to demonstrate the value of my advice.
Book a FREE discovery call HERE.
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