The Value of Advice
In today’s world, it seems there is an app or tech solution for almost everything. Financial Planning is no exception. With the advent of robo-advice and finance apps that put low-cost index trackers in reach of almost anyone, you may ask ‘what is the value of engaging a Financial Adviser?’
The good news for both individuals and Advisers is that there is significant value in giving and receiving good quality, tailored, financial advice. While each client relationship is unique, there are a few common factors that stand out.
Time saving How do you like to spend your spare time?
Understanding workplace pension forecasts;
Re-broking cash ISAs and mortgages;
Understanding your marginal tax rate;
None of the above.
With the arrival of Auto-Enrolment almost all UK employees will soon be funding 8% of their earnings to their pension[i]. Despite this, the understanding of pension pots is relatively limited; most people may know who has their pension money and roughly how much it is – but not much more. This shouldn’t be a surprise. Anyone who has ever received correspondence around their pension options will understand that it can all be a bit confusing. Confusion breeds contempt, contempt breeds inertia, inertia breeds complacency, complacency breeds failure.
The fact of the matter is that most of us will have other things that we’d rather do with our spare time, which while completely understandable, does not do us any favours financially. A good adviser will help remove complication and hassle from your life, providing you with the freedom to pursue what is really important to you whilst ensuring that what really matters is still in safe hands.
How much is your time worth to you? Best Practice and Smarter Decisions
Most Financial Advisers will try to add value not only through maximising your financial potential, but through encouraging people to make smarter decisions with their money and, where necessary, asking some hard questions.
As humans we are programmed to place greater importance on the tangible, the ‘here and now’, often at the expense of our future financial well-being. Being able to help an individual build a clear picture of what is important to them, providing clarity (and the occasional well-intentioned nudge in the right direction!) about what actions they need to undertake to achieve this, ultimately allows much smarter decision-making. You can find any number of studies that emphasise the tendency of writing down a goal to increase the chance of achieving it.
To quantify the value of smarter decision making, ‘behavioural coaching’ was found to add an extra 1.5% p.a. on average to a client’s long-term return[ii], typically achieved in a ‘lumpy’ fashion around the timing of key decisions.
To put this in the context of a 21-year old earning £26,000 p.a. rising at 5% p.a. over their working life who invested 8% of their earnings in an investment that grew at 5% p.a. - this extra 1.5% p.a. would amount to an additional £418,000 at age 67.
So next time you find yourself wondering ‘what is the value of engaging a Financial Adviser’, know that through making smarter decisions and then harnessing the power of time to compound resulting gains over many years, engaging an Adviser can take much of the hard work out of one’s future planning.
[ii] Source: https://www.vanguard.com/pdf/ISGQVAA.pdf
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected any may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.