According to a new survey, only ten per cent of Britons currently have a financial adviser.
Aegon polled more than 900 people and found that 47% make financial decisions on their own and 40% make decisions with their partner or spouse. The survey also found that even among those who are about to start drawing down their pension, two out of three have not sought advice.
Commenting on the findings, Aegon’s pension director Steven Cameron described the numbers of people seeking advice as “worryingly low”.
“Making the right decision on your retirement finances is hugely important,” he said, “and really should be done only with the help of a professional adviser.”
If there is a positive to take from the Aegon report it’s that last year’s figure for the take-up of advice was even lower, at 8%. But for those of us who believe strongly in the value of professional advice, that’s scant consolation.
So, why are people so disengaged? One reason is the rising popularity of so-called robo-advice. Most robo-advisers do a reasonable job and, particularly for younger investors, they’re a sensible choice. The problem, though, with robo-advisers is that, with very few exceptions, they’re not advisers at all; they’re automated wealth managers.
But perhaps the most important reason why most people don’t pay for face-to-face advice is that they don’t actually know how an adviser adds value. They continue to think that the primary job of an adviser is to recommend financial products. Indeed many advisers are under the same misapprehension.
The truth is that advisers are little or no better than anyone else at market forecasting. Very, very few advisers have a track record of at least 15 years of consistently beating the market after costs, and your guess is about as good as theirs as to which funds will outperform over the next 15 years.
In the investing context, an adviser primarily adds value by building a low-cost, diversified portfolio which reflects your capacity for risk; by rebalancing that portfolio every year or so to restore your original asset allocation; and, most important of all, by helping to keep your emotions in check and stopping you doing things you’ll later regret.
Research from Vanguard has shown that a good adviser can add about 3% to your net investment returns every year. Over the course of your investing lifetime, that can add up to a very substantial sum.
But the adviser role extends far beyond taking charge of your investments. Ideally, you should be looking for a financial planner — someone to help you work out what you want from life, put it in a plan and, crucially, help you stick to the plan. You should also choose someone who can assist you with tax planning and estate planning.
You need someone, in short, who can see the bigger picture — an objective expert with your very best interests at heart.
In most cases, it’s only when a client experiences good advice that they truly understand the value of it.
Dimensional Fund Advisors (DFA) last year conducted a survey of investors on behalf of the advice firms that DFA works with. It polled nearly 19,000 people in Europe, the US and Australasia. In answer to the question: ‘How do you primarily measure the value received from your adviser?’, by far the most popular response was “sense of security/ peace of mind”.
Asked what their greatest fear was regarding their personal finances, the top response, again by a considerable margin, was “not having enough money to live comfortably in retirement”.
The survey confirmed our own experiences as a firm. What clients value most are the more intangible aspects of the client relationship, not the investment returns they receive. Many of them aren’t particularly interested in talking about the financial markets; what they want to know more than anything is that they’re going to maintain or even improve their standard of living for the rest of their lives.
Knowing that gives true peace of mind, and how could you possibly put a price on that?
The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.