The real value of financial advice

I’m lucky, I see the value of the advice I give to clients every day of my working life.

That’s by no means the case for everyone though.

Research from the FCA (Financial Conduct Authority) shows that only 3.2 million people (equivalent to 6% of the population) had received regulated financial advice in the preceding 12 months. Worryingly, the same report showed that around four times as many people, 12.8 million, equivalent to 25% of the population, hadn’t received financial advice in the past 12 months but might have had a need for it.

There are many reasons why those 12.8 million people aren’t taking financial advice; they might not recognise they have a need, they might not trust financial professionals (a big issue, which I’ll return to in future months) or they might be put off by paying fees for advice.

It’s the last of those which I want to consider today.

The first thing we need to consider is the difference between cost (important) and value (more important). I’ll go with Warren Buffett’s definition: “Price is what you pay and value is what you get.”

I’m not perfect, but whenever I make a large purchase or pay for advice myself, I try to focus on value and not price. I always advise my clients to do the same; only continuing to engage with me if the value they are receiving exceeds the price they are paying.

So, let’s look at value…

“Show me the money!”

There’s mounting evidence that financial planners deliver value far in excess of the fees they charge.

A 2017 report by the International Longevity Centre – UK (ILC – UK) and Royal London found that those people who received advice had up to £42,245 more in liquid assets compared to their non-advised peers. Furthermore, 90% of those who received advice were satisfied with the advice they received.

Meanwhile, a study by Vanguard in 2014 showed the value clients received each year from their adviser. The Vanguard study defined an ‘Adviser’s Alpha’ as the difference between the return investors may achieve working with an adviser and that they might have achieved on their own. The study concluded that an Adviser’s Alpha was equivalent to around 3% each year.

Which nicely leads us on to…

Threats and opportunities

Financial planning also helps those people who engage take advantage of opportunities while avoiding potential threats.

Opportunities might include reducing tax, allowing you to keep more of your hard-earned wealth yourself or maximising available tax-reliefs, helping you to grow your capital base more quickly.

Threats lurk around every corner; constantly changing legislation and tightening fiscal policy chief among them. As are knee-jerk reactions when markets fall (in reality volatility should be seen as an opportunity, not a threat) and expensive investment managers whose charges eat into your returns and wealth, reducing your chances of achieving your financial objectives.

“It’s about more than money”

If my job was only about making more money for those people who already had plenty, I’m not sure I’d carry on doing it. In fact, I know I wouldn’t.

There’s more to life than money, right?

I believe money is simply a means to an end. The pursuit of wealth just for the sake of it has always seemed rather pointless to me. Far better to put your money to hard work. I’m not talking about investing it prudently, although that is of course important, but using your wealth to help you achieve the things in life you want for yourself and others around you.

I’ve always believed that’s where financial planning adds the most value. That might mean:

• Giving someone the confidence that they can afford to change their life, stepping down from a highly pressured position, without it affecting their family’s short, medium or long-term financial future
• Helping someone in their 50s understand that they can afford to retire early and live the life they want, without the fear of running out of capital in the future
• Demonstrating that you can afford to provide financial assistance to your children or grandchildren, perhaps to help them buy their first home, without causing yourself hardship in the future

Growing wealth, while taking advantages of opportunities and avoid threats, are all important. But it’s these scenarios, and I could think of many others, which show the real value of financial planning.

There’s no doubt in my mind that it can be life-changing.

If you have a financial problem or challenge, are at a crossroads or simply thinking: “there has to be more to life than this” then financial planning might help. If you would like to know more, please get in touch, I’d be delighted to explain how I work and could potentially add value to your life.

Please note

The value of your investment can go down as well as up and you may not get back the full amount invested

The Financial Conduct Authority does not regulate taxation advice