What is the value of financial advice? £40,000 apparently
According to Royal London and The International Longevity Centre, people who take financial advice are on average £40,000 better off than those who don’t.¹
Clearly, the value of advice is subjective down to an individual level, but this report explores the impact of receiving advice during the period 2001-2007 on consumer outcomes in 2012-14. It uses an advanced statistical method called propensity score matching which identifies two similar groups of individuals within the data and then assesses the impact of advice on one group (the treatment group) versus the other (the control group) thereby mimicking a scientific experiment.
The study found those who took advice were significantly more likely to save more as well as to invest in the equity market.
Surprisingly, the impact was similar regardless of whether the individual was wealthy or not:
- The “affluent but advised” group was 6.7 percentage points more likely to save and 9.7 percentage points more likely to invest in the equity market than the equivalent non-advised group.
- The “just getting by group” was 9.7 percentage points more likely to save and 10.8 percentage points more likely to invest in the equity market than the equivalent non-advised group
Subsequently they ended up with more financial assets (£13,435) and pension wealth (£27,664) by 2012-14 than similar individuals who did not take advice:
- The “affluent but advised” group accumulated on average £12,363 (or 17%) more in liquid financial assets than the equivalent non-advised group, and £30,882 (or 16%) more in pension wealth.
- The “just getting by” but advised group accumulated on average £14,036 (or 39%) more in liquid financial assets than the equivalent non-advised group, and £25,859 (or 21%) more in pension wealth.
If advice is so beneficial, why are more people not taking it?
The obvious question arising from the survey is if people are on average £40,000 better off if they receive financial advice, why are more people not seeking it out?
According to the same study, only 16.8 per cent of the population received advice between 2012-14. That included less than half of people who made an investment during that time, when theoretically, their money was at risk.
Nick Moules, Head of Marketing at Wren Sterling added: “A financial adviser’s skillset is unique. They’re focused on helping clients achieve their long-term goals, which includes growing wealth, but they’re also trained experts in tax planning and solving complex financial problems that the average man on the street would struggle to unravel – so clients pay for professional advice in the same way they would pay for an accountant or solicitor.
“Wren Sterling is a financial planning business. This means we help our clients plan every aspect of their financial lives to support their overall life goals backed by market-leading research and our investment partners.
“To give an example at the most basic level to demonstrate the added value financial advice offers, imagine a client has inherited a lump sum and wants to invest it. Choosing an investment involves much more than simply choosing a high performing fund, which could be done almost instantly. Other considerations that could be missed but which will dramatically impact the real return on the investment might include the length of the investment, investment charges, whether the client is missing other more tax-efficient products such as pensions or ISAs and the potential impact on other financial commitments by making the investment, including repaying debts.
“The best way to see whether financial advice can help you is to speak to an adviser. There’s never any charge to you for an initial discussion and 13,000 other people in the UK trust us with their financial affairs.”²
IMPORTANT: The value of an investment can go down as well as up, investors may get back less than their initial investment. Past performance is not a guide to future performance.
² Internal data, August 2018
According to the ILC, people who take financial advice are on average £40,000 better off than those who don’t. Clearly this depends on the individual, but this study finds that those who took advice were significantly more likely to save more as well as to invest in the equity market.
Cashflow planning allows advisers to show clients how their financial journey will unfold if it continues its current trajectory or with positive and negative impacts. Find out more about what it is and how we use it at Wren Sterling.