From Wednesday to Friday evening last week, while the rain beat down day and night, I MC’d the 2018 National Conference for the Association of Financial Advisers (AFA) at the Royal Pines Resort on the Gold Coast. Established in 1946, the AFA is Australia’s oldest association representing financial advisors and the value of financial advice.
At the conference, the AFA launched a research White Paper called The Value of Advice. The paper centred on the effects on ordinary Australians of getting advice. Conducted by specialist financial services research firm CoreData, a global research and consulting business (with offices in Sydney, Perth, London, Boston and Manila), the paper revealed that these effects were profound and long lasting, in not just the financial sense, but emotional and behavioural as well.
CoreData conducted a quantitative study of 946 mass affluent Australians, looking at variations between advised and non-advised customers, along with 15 in-depth interviews of Australians receiving advice. It then conducted advice modelling of common scenarios using common financial planning software. Founder of CoreData, Andrew Inwood, presented the research to the 600-strong audience at the conference.
“Three scenarios were chosen,” Inwood said. “’The Big Check Up’, designed to model the effects of getting advice in the last part of your working life; “The Loss of a Partner”, designed to model the effects of a married couple with two children in their early 40’s; and “The Upstarts”, designed to model the effects of getting advice as a couple with young children in their early 30’s.”
Inwood said that CoreData took a deliberately conservative approach to the modelling, building in the cost of advice, consistent returns, consistent cost of living and returns and removing any assumptions of extra assets from the death of parents or exceptional returns.
“The research really shone a light into the three benefits of working with a financial planner,” Inwood said. “People working with a planner are better off, emotionally, financially and behaviourally.”
“Emotional benefits relate to day-to-day wellbeing and happiness. Research participants indicated significant emotional benefits. Peace of mind and confidence with managing finances was a major value proposition of financial advice.
“Financial advice leads to better financial decisions. Advised clients typically pay less tax, have little to no bad debt and have their money working harder for them and end up better off, if they stick with the plan for any reasonable period of time,” Inwood added.
CoreData’s research revealed that the behavioral benefits are longer-term structural habits. “The research revealed that working with a financial adviser trains better behaviors. Advised clients are more in control of their finances than unadvised individuals.”
Inwood told delegates that the evidence for advice presented from the research was particularly compelling for those who started the advice journey early.
“In all three scenarios, we tested the results that showed that advice provided very real financial benefits, particularly for the younger customers – but the effects on their state of mind and financial confidence were most interesting.”
“For example in the “Upstarts” model, the research showed that if the subjects stick with the advice practice, they will be more than $700,000 better off at retirement. For the “Big Check Up”, they would be $127,000 better off. And for the “Sudden Loss” scenario, the single parent would be $29,000 a year better off.”
And then the surprise findings were highlighted: “In this research, it was found that 50% of mass affluent Australians (those earning between $76,000 and $149,000 a year) would have exhausted all their savings within three months, if they lost their job. That number halves for advised Australians, with 50% being able to cope for more than six months.
“The financial confidence and behavioral data is substantial, with 82% of those with advice stating that they were confident about retirement and 54% stating that since receiving advice they were saving more.
“The data is very clear,” Inwood concluded. “Australians (who seek advice) are relatively richer, better insured and more confident.”
One last point needs to be made in light of the Royal Commission into the financial services industry. Like lawyers, accountants, doctors and tradespeople, there are people of different quality and integrity and it’s wise to be aware that not all experts behave well.
The fact that some financial advisers have not covered themselves in glory should not stop you for looking for a trustworthy adviser who, if they’re professional and work in your best interest, should be able to make you materially more comfortable. And with that goes happiness as well as confidence.