Ever been asked what your financial advice is worth? It could be more valuable than you think. The numbers show that financial advice adds significant value to clients, improving their finances by measurable and significant amounts.
Advising on the right investment strategy can generate 29% more income for a retiree
Morningstar’s The value of advice research shows that making “sound financial planning decisions in five areas: asset allocation, withdrawal strategy, guaranteed income products, tax-efficient allocation, and portfolio optimisation, can generate 29% more income on average for a retiree.” That is a massive difference – and it is evidence that clients who are advised do benefit financially, in a big way.
Helping your clients stick to their investment plans, especially in a crisis, adds 1.5%
Behavioural coaching is the single most impactful thing an adviser can do, says a Vanguard study, and adds, on average, 150 basis points, or 1.5%, to returns. This is the difference between earning 6% or 7.5% per annum on an investment. This finding is backed up by a Dalbar study of nearly 1 000 investor experiences that found that over 80% of investors had a higher account balance because of the help of an adviser during a crisis.
“A financial adviser is a guide who can show clients how to make good financial decisions and help them avoid the decisions that can set them back. Clients with advisers have a head start and better financial long-term outcomes,” says Barry Shrosbee, senior manager at 1Life.
Humans do add more value than robots!
“We found that human agents excel in all dimensions by providing an additional perceived 5% in returns, $160 000 in financial success toward goals, and three times the emotional support, as compared to investors managing their investments on their own.” Vanguard Advisor’s value research
Advising families to take out insurance helps them build generational wealth and avoid a poverty cycle
When you don’t have long-term insurance you not only lose an opportunity to pass down generational wealth, you also risk your family’s financial future. Think of the family who loses an income earner and can no longer afford their standard of living.
Shrosbee says that people can become trapped in a vicious cycle of poverty if an income earner passes on and has no insurance. This can leave a family always struggling to make ends meet, which can continue from one generation to the next.
“Advisers can show clients how insurance can enable them to improve their lives and pass on wealth to their families, ensuring future generations have access to more financial resources. One benefit of this is that children can receive a good education, which will then make it possible for them to earn higher incomes than generations before them.
“And it isn’t expensive – a policy with an affordable premium provides a client full cover from day one and will ensure their income is replaced if something happens. That isn’t something many other financial products can do.”
Advising clients on the appropriate amount of life and disability cover can add R2.2 million in value
The average South African income earner is underinsured for life and disability cover by R2.2 million, according to the Asisa 2019 Gap Study. The study found that income earners in the country needed, on average, R1.6 million life cover, but had only R600 000, and R2.3 million disability cover, but had on average R1.1 million.
Financial advisers who support their clients in sustaining adequate cover, ensure they and their families can maintain their standard of living if an income earner suffers a disability or dies.
Importantly, the study found that the average earner would need to spend only an additional 4.6% of their after-tax income to purchase adequate life insurance. However, after the loss of an income earner, the family would be forced to generate additional income of R5 362 per month or reduce household expenditure by 32%.
Bottom line: The value of advice is quantifiable and often more than expected.
More ways advisers add value
There are several other ways advisers add value. For example, they demystify financial jargon and translate it into plain language for their clients, helping them make informed decisions. Shrosbee says this is particularly important as financial skills are not taught in schools, and many South Africans don’t know which financial decisions can harm or which will help.
“Financial advisers can make information relevant and understandable to their clients,” he says.
Advised clients don’t only benefit financially from your advice. Because of their improved financial outcomes, they should also suffer from less financial stress – making for a healthier, more comfortable life.
It’s always a good idea to take a step back every few months and look at what value you add to your clients. This will not only give you quick answers when a potential client asks why they should become a client or follow your advice, but it also keeps you in touch with your purpose – helping people achieve their financial goals and build generational wealth.