Research indicates that paying for investment advice generates a better return than not taking advice.  The potential value added is in the region of 3% a year – although, to be absolutely fair, some aspects are annual and delivered smoothly while other parts are "lumpy" chiefly at times of market euphoria or stress.

The real value of working with a Financial Advisor is in avoiding expensive mistakes. It’s less about picking the best investment and more about making smart decisions with all aspects of your money.

Whilst 3% per year might not sound like much, over time, it can add up to a very big number! 

Let’s assume that you have £250,000 in investments. In an average year, these investments might grow by 5% per year. Over a period of 15 years, your investments would grow to £495,000. 

If you work with a Financial Advisor and achieve the extra 3% per year, the same investment would grow to £734,000, nearly £240,000 more!

So how does working with a Financial Advisor give this added value?

Asset allocation and diversification – this refers to the percentage of a portfolio invested in various asset classes such as stocks, bonds and cash investments according to an investor’s financial situation, risk tolerance and time horizon. Asset allocation and diversification are arguably the two most powerful tools Advisors can use to help with a client’s goals and manage investment risk.

Cost effective implementation - every pound spent in charges is a pound off potential returns – when you pay less, you keep more, regardless of whether the markets are up or down. In fact , in a low-return environment, such as we are currently in, costs are even more important because the lower the returns, the higher the proportion that is assumed by fund expenses.

Regular rebalancing of portfolios – given the importance of asset allocation in relation to a client’s attitude to risk, it’s also vital to maintain that allocation.  A Financial Advisor will review the portfolio objectively and rebalance as and when required.

Behavioural coaching - most investors understand the importance of remaining disciplined at times of heightened uncertainty.  However, very few succeed in staying calm in turbulent markets. Indeed, many end up taking exactly the wrong course of action.  A Financial Advisor will act as a voice of reason between you and an expensive mistake. They will provide sound, objective advice, helping you stick to the plan and remain invested.

Tax management - taxes can be a major drag on investment returns. Selecting the right ‘tax wrapper’ is just as important as selecting the right investment strategy. 

Spending strategy - the number of people in retirement is rising rapidly; many people have both ever greater options and complications.  The order in which withdrawals are taken can significantly influence overall returns.  A good Financial Advisor helps you to create a strategy that will work best in your circumstances.

An inevitable conclusion is that expert advice is likely to be of significant value.

March 2023