Do you need a financial whiz?

ADVISED VS NON-ADVISED: HOW THE NUMBERS STACK UP While a good advisor can make a positive impact on your finances, a bad one can be destructive.

There’s much scepticism about the value of advice and financial service providers in general. Some bad brokers have earned the financial planning industry a bad reputation by not always acting in the best interest of their clients and charging ridiculous upfront fees. With the rise in direct online advice through robo-advisors, one needs to ask: “how much value can a financial advisor provide?”

Do you get value for financial advice?

The UK’s International Longevity Centre’s (ILC’s) recent research report, “The value of financial advice”, shows there’s real value created for investors when they obtain financial advice.

The report considered affluent investors and those with limited assets. Advised affluent investors entered retirement with 17% more money in liquid financial assets and 16% more money in retirement funds than the wealthy group not advised. The advised, non-affluent group accumulated 39% more capital in liquid financial assets and 21% more in retirement funds than its peer not-advised group.

It’s worth remembering the capital these investors accumulated is after all fees.

Vanguard’s study on the benefits of having a financial advisor, found a good advisor adds about 3% per year in net returns for investors. To appreciate this difference, consider two investors each with R10 million, wanting to invest for a decade. One investor uses an advisor; the other manages his investments on his own. In theory, after ten years, the advised investor will have R8.9 million more.

A good advisor helps you save more

The ILC study found investors saved more and were more willing to invest in growth assets (like shares). The advised wealthy group were 6.7% more likely to save and 9.7% more likely to invest in equities versus the wealthy group who weren’t advised. The advised, non-affluent group saved 9.7% more and were 10.8% more likely to invest in equities than the non-advised group.

Not all financial advice is the same

It pays you to do your research and interview a few different advisors before choosing one. Most importantly, you want someone not focused on selling you products. Find out if the advisor earns a commission on what they recommend for you. If so, ensure the products recommended are suitable for your needs and not just advised so they can earn an income.

Also, look for advisors with the certified financial planner accreditation – these advisors have the required education, experience and ethical standards to provide advice.

One size doesn’t fit all

These studies make the argument for using an advisor, however that doesn’t mean all investors should use an advisor for all their investments. Some people are very capable of managing their investments on their own.

There are some instances where advice might be beneficial even to those knowledgeable about finances and with the time to do their own research, for example tax compliance, estate planning and overall investment strategy.