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Does Financial Advice add Value?

Andy Capp was one of my favourite cartoon characters. One day, as they are strolling home, Andy appears to be particularly dejected. When Florrie asks him what is wrong, he responds that he feels so useless.

Florrie perks him up when she says: “Don’t you ever think that. You are a very good bad example to the children in the neighbourhood.”

Most of us wonder from time to time whether what we do is appreciated enough. In the past few weeks, we covered a number of topics which could drive you to drink (if you are not already there). Issues like threats to cut commission, stricter regulation and additional administrative burdens do not go down well, no matter how many spoonfuls of sugar are added.

It was therefore a sheer delight to lay my eyes on a document which extol the virtues and value of financial advice, and nogal from a client’s perspective.

The Australian Association of Financial Advisors (AFA) published a white paper in 2010, providing the results of a survey conducted by an independent research company. With them being a bit further down the regulated road, this may very well apply to us now.

The sub-title of the publication reads: “Why people with financial advisers are happier, richer and more purposeful.”

The key question asked in the survey is: “What do financial advisers do, and how do they add value to their clients?”

Space does not allow us to elaborate on all the findings, but the gist of it is summarised as follows:

The reality from the research and the central proposition is that consumers who have an advice relationship are better planned, are happier with their investments, have a financial coach to help with major life decisions, provide peace of mind, administration of financial affairs and assistance in facilitating a path to financial freedom.

Something which provided better insight into the role and value add of an advisor, from a client perspective, is the three roles of an advisor, namely the provision of strategic advice, the provision of tactical advice and implementation.

  • The strategic role involves coaching and guiding clients through the various changes they will face throughout their lives, and helping them to make the big life decisions.
  • The tactical role is around providing expertise on insurance, investments and superannuation and putting in place a plan that is suited to the individual’s needs.
  • Last but not least, an adviser is there to turn best laid plans into action.

In my view, these aspects sum up very nicely what an advisor should do for a client, and why a retainer in the form of on-going commission should be paid.

We quote below some more of the salient facts from the survey:

Why Consumers Seek Advice
The top reasons for seeking advice include access to investment advice/expertise (68.4%), general investment information (53.6%), help with goal setting (52.1%) and provision of feedback on investment decisions (50.2%).

The main reasons for not seeking advice are that fee structures offered are not acceptable (30.5%) and an unwillingness to pay fees for advice (29.7%).

While there is no overwhelming evidence that consumers want to pay for advice in one particular way, what is clear is that they want value for money and the cost of advice to be transparent and agreed by them upfront.

Trust: Consumers and Financial Advisers
Specialist doctors are the most trusted among those who give professional advice, receiving a rating of 8.0 out of 10. Financial advisers are highly trusted by the advised (7.5), coming in third behind specialist doctors and dentists, although the unadvised awarded a much lower trust rating of 4.5.

The survey results really make interesting reading. I trust that for most of our readers, it will just be an affirmation of what they already do, but who knows, maybe even you can learn something from this.

Please click here to access the relevant page on our website. The document appears under the third heading: MS Industry News.

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