The True Worth of Financial Advice: Why it’s More Valuable Than You Think

Do you ever find yourself wondering if financial advice is really worth the investment? In a world saturated with DIY investing options and robo-advisors, it’s easy to question the value of seeking professional help. However, unlocking the true worth of financial advice may be more valuable than you think.

Financial advisors bring a wealth of expertise and experience to the table, helping individuals make informed decisions about their money. They can navigate complex financial landscapes, provide personalized strategies, and offer valuable insights that can have a lasting impact on your financial well-being.

From retirement planning to tax optimization and risk management, financial advisors can assist you in achieving your long-term goals and objectives. They can also provide peace of mind and help you stay on track during periods of market volatility or economic uncertainty.

So, before dismissing the idea of seeking financial advice, take a moment to consider the true worth it holds. By partnering with a trustworthy and competent financial advisor, you can unlock a world of opportunities and maximize the potential of your hard-earned money.

The importance of financial advice

We have come across an interesting article prepared by Russell Investments (Russell Investments /2023 Value of an Adviser Report) showing that the value of an adviser in Australia is approximately 5.9% in 2023, which is quite a bit higher than the average cost of financial advice in Australia.

So how did they come up with this number?

As advisers sitting in front of our clients at least once a year, we realize that being an adviser is not simply going through your investment portfolios and providing a market update. It is being able to provide tax, social security, estate planning and aged care advice as well as navigating through human behavior.

A is for Asset Allocation = 1.2% per annum

Russell Investments’ analysis shows that a professionally built portfolio can add up to 1.2% per annum to your return by simply putting you in an appropriate asset allocation (growth/defensive). It all adds up over time with the power of compounding.

B is for Behavioral Coaching = 3.4% per annum

The last few years have been pretty challenging for investors. Trying to navigate through COVID-19, geopolitical issues and effects of monetary tightening to combat high inflation is hard. The market volatility we are seeing as a result of all these issues is quite significant.  It is natural for people to feel anxious after seeing all the media headlines and hard to stay on track. However, advisers can assist with constructing portfolios and suggesting changes to get through those events with minimal losses.

Trying to time the market or in other words picking the best time to invest is another big issue we have to discuss with our clients. Clients often ask us ‘When is a good time to invest’? The simple answer to this question is you have to stay in the market throughout cycles. If you can add to your investments that’s even better; however, without the guidance of advisers, investors can fall into the trap of buying when markets are bullish and selling when sentiment turns bearish.

C is for Choices and Tradeoffs = Variable The complexity of advice grows with age as different personal goals and objectives, risk profiles and trade offs come along (refer to the graph below).

The 2023 Intergenerational Report forecasts the number of Australians aged 65 and over will more than double over the next 40 years. Those aged at least 85 are forecast to more than triple and the number of centenarians is expected to increase six-fold.  This creates great demand for good quality financial advice, along with working closely with other specialists such as lawyers and accountants.

E is for Expertise = Priceless

Over a lifetime, a trusted adviser can add significant value to emotional wellbeing and support clients during good times, and tough times as well.

Retirement planning is one example where professional advice adds considerable value. Having to navigate legislative and product selection is hard without professional assistance.

Having access to certain social security benefits and understanding how they can be maximized is a whole new level of advice and complexity.

T is for Tax Savvy Planning and Investing = 1.3 %

Tax consideration is an important aspect of investment and estate planning advice. Superannuation is the best tax effective environment which provides tax free benefits after reaching the age of 60. 

Russell investments believes the value of tax savvy advice is at the least the sum of asset allocation and asset implementation, which is 1.3% per annum.

Advisers provide superannuation advice such as salary sacrifice, transition to retirement or alternative tax effective investments such as bonds or other investment entities.

All the above add up to at least 5.9% per annum; however, it’s just the tip of the iceberg and our relationship with clients obviously goes beyond percentages. Our job as advisers is to put our clients’ minds at ease during the most difficult times by presenting facts and research and apply our professional knowledge to navigate such times.

Disclaimer: The information in this article is general and does not take into account your particular circumstances. We recommend specific tax or legal advice be sought before any action is taken and refer to the relevant Product Disclosure Statement before investing in any product. P3 Financial Planning Pty Ltd ABN 61 009 883 292 AFSL 464628