Proof at last that it pays to invest in sound advice

THERE are always investors who (correctly) question the value of three things: financial advice, fund managers and product platforms. When you combine these three elements, you have a financial planning ecosystem that is supposed to work for the benefit of investors.

Of course, all these elements carry a cost, so investors need to be sure that they get real benefits from paying these costs.

Until now, not much research was available to quantify these benefits for investors, but we have some new research on the topic and the results are interesting.

Investors who want their money to be professionally managed will typically rely on a financial planner, who might then use unit trusts on a platform owned by a product provider.

A platform is simply an administrative system that allows investors to own a range of unit trusts through one account.

These unit trusts can be bought using that investor’s living annuity, endowment or retirement annuity.

This has some intrinsic advantages for advisers, who benefit from the administrative efficiencies of having all their investors bunched into one or two platforms, rather than 10 separate companies.

But it has some benefit for the investor too, as they can track their investments more easily, usually on one statement.

In the past, investors used to pay big money (a fee normally being about 0.5% of the value of assets being managed) for these sorts of platforms — quite expensive for the benefits provided.

In recent years, these fees have started to drop, which has made these platforms more attractive.

But the big question is, can a good financial planning ecosystem make you money?

The new research shows that the answer is yes.

As the market for platforms has matured, we have seen some platforms move from offering every unit trust available in the market to a more select range of funds that have the best chance of delivering good returns.

There is a measure of quality control in the range of funds, in addition to the administrative benefits, and the best platforms have worked hard to communicate effectively with investors.

Finally, some platforms have tried to ensure that they deal only with high-quality investment specialists as advisers.

This combination of high-quality funds, specialist advisers and low administration costs has proved to be a winner for the ultimate investors.

According to Allan Gray’s research, clients on its platform typically achieve an annual growth of 2% more than clients on other platforms.

This can be a real benefit to investors. For example, if you invest R100 000 for 20 years and achieve a growth rate of 2% a year more than other investors, you will have R200 000 more than the other investors.

This is a positive reflection of the work done by Allan Gray and the advisers who use the platform.

I know of a few more platforms offering similar benefits to investors, I just don’t have research from them to show their investors’ performance.

It is important to note that there are also advisers who might use a more open platform but achieve the same results for their clients through careful fund selection and good communication with their clients.

I am an adviser and could be accused of bias, but I believe that this research shows that a good adviser who chooses good funds and sets the right investment expectations for you can generate extra capital growth that will offset what you pay for the service.