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Advice delivers a whopping 5.9% edge

Financial advisers deliver a value of 5.9% beyond what clients could normally expect as they navigate their financial affairs, according to Russell Investments.

That 5.9% value is derived from 1.2% attributable to appropriate asset allocation, 3.4% attributable to behavioural coaching and 1.3% attributable to savvy tax planning and investing.

The latest Russell Investment Value of Adviser Report suggests that financial advisers have more than proved their value over the past two years as they have helped clients navigate the uncertainty in domestic and global investment markets.

Releasing the report, Russell Investments Managing Director and Head of Distribution in Australia, Neil Rogan said that too often non-advised investors made rash decisions and changed investment strategies when there needed to be greater consideration of the longer term.

“This is where advisers become just as much a behaviour coach as a financial coach. In 2023, behavioural coaching alone could contribute 3.4% to the value of investors’ portfolios,” Rogan said.

He noted that the value added on asset allocation was 1.2%, and the report highlighted how clients with an advised strategy could benefit over the longer term with asset allocation remaining responsible for more than 85% of an individual’s investment outcome.

“Retail investors are more likely to recall individual stock performance rather than focusing on broader asset classes and the overall investment strategy. An adviser adds value by bringing a disciplined and sensible approach to meet their clients’ needs,” Rogan said.

“Non-advised Australians can find themselves in a single strategy super product lumped with other members and not really addressing their long-term financial goals. The potential 1.2% in value from an adviser achieved through carefully considered asset allocation can make a substantial difference to an investor’s outcome.”

Rogan said that an adviser with tax savvy planning and investing skills contributes another 1.3% in value, and this is crucial to ensure clients’ portfolios do not unnecessarily leak funds. Given that only 12% of investors list overall tax effectiveness among their top three investment considerations when making investments, there is an opportunity for advisers to further demonstrate their value.

“Investors need to look beyond their annual tax returns and recognise there are tax implications for many financial decisions now and into the future. Advisers can structure investment portfolios to be tax efficient and work through the complexities that come with tax planning, ultimately optimising their clients’ outcomes,” he said.

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