According to the Financial Advice platform Adviser Ratings, the cost of financial advice has risen substantially in recent decades – and that’s for three main reasons. Firstly, many advisers are leaving the industry due to increasing professional standards and education requirements (that’s definitely a good thing in the longer term!). Secondly, advisers are facing more intensive regulation, and thirdly, they’re dealing with unprecedented demand as more and more baby boomers move from employment to retirement.
So with the cost of financial advice on the rise, it begs the question – is the advice actually worth it?
As with everything – and this is a financial adviser’s favourite phrase – that depends on your individual circumstances!
Actuary firm Rice Warner recently released the Future of Advice report, which offered a unique insight into whether the financial benefits of seeking advice generally outweigh the cost of advice overall. Rice Warner found that advice is very much worth it in two ways:
Firstly, because of the work you need to do to manage your personal finances. Consumers find it extremely difficult to be across their financial affairs because it really is complex – consider tax, super, social security and all the different rules that accompany them. Obviously, the personal financial system is complicated, and in helping you to navigate that, financial advice becomes inherently valuable.
But financial advice also literally pays off. Rice Warner’s research shows those who received advice over 4 to 6 years accumulate 60% more in assets than those who don’t receive advice at all. Over 15 years, the difference is huge at 290% – or nearly three times as many assets accumulated.
The data is even more striking for young people and people on lower incomes. Those who take financial advice from a younger age are better off, and people with lower incomes tend to benefit more from advice than those who are wealthy. That reflects the tendency of wealthy individuals to save less of their disposable income.
So, why don’t more people engage a financial adviser?
Well, in the absence of straight data it can be hard to actually see the value day-to-day. Financial advice, at least initially, can be a little bit intangible – so the value for a client can be hard to gauge.
There’s also the cost. Financial advice is costly to deliver, and a lot of clients believe it to be too expensive for what they get (which is, again, intangible at first). A lot of people also think financial advice is only for those who already have money, even though the research shows otherwise – anyone can benefit from advice!
On top of those two obstacles, there’s a general lack of trust following the 2019 banking royal commission and the fact that many advisers can find it difficult to explain or effectively show the value of their advice in simple terms. Good advice should always be actionable.
Ok then – what do good advisers provide?
Good advisers will help you with four things:
An objective view
A good adviser will look at your financial situation without an emotional attachment and ask questions you might not like – as well as highlighting areas where you could improve.
It takes many years and a lot of study to achieve the designation of Certified Financial Planner. Most people we help do not know how to choose or manage their investments appropriately, and many are not receiving the amount of age pension they are entitled to. Some, on the other hand, are simply paying too much tax. That’s where your adviser can help – their expertise means they know how best to structure investments, whose name they should be held in, which assets are assessed for the age pension and which ones aren’t.
Often the most important role as a financial adviser is to provide the discipline to continue saving, pay a certain amount off your loan or maximise your contributions to super. Rebalancing a portfolio regularly is another major task, which requires discipline because the majority of people simply don’t do it.
It’s important for a good adviser to keep you informed on how your investments are performing and to ensure you don’t go and do anything you will regret later – such as selling out of the share market in March 2009 at the height of the GFC, or borrowing money to invest in property at age 60 in an obviously weakening property market!
What should I look for in a financial adviser?
If you’re looking for a financial adviser, you need to look for a Certified Financial Planner. This will ensure you are dealing with someone who has attained the highest level of qualification currently available.
You should also be sure that your adviser has been in business long enough to establish a good track record, and has seen clients through different market cycles. It’s easy to provide advice when markets are booming, but not so easy when times are tough.
It’s important to ask whether or not your adviser works on a fee for service basis – this means your fees will be set and paid directly by you, and not taken out of a product.
And finally, you need to like them. Ultimately your financial adviser is going to know more about you than your doctor or your accountant, so you need to trust them and get on with them. Just because someone looks slick, doesn’t mean they are – so trust your instincts and work with someone who feels right for you.
Reach out to Knight today to find out more:
All financial services are provided by Knight Financial Advisers Pty Ltd; Corporate Authorised Representative number 285301 of Australia Financial Service License number 438631.