Financial Advisers Can Create a Lot of Value for Their Clients, But Are They Worth the Money?
Deciding to appoint an adviser will always be a bit of a leap of faith.
Much of the value you get is intangible, but fortunately the evidence shows that advisers can add significant tangible benefit. Based on our charging structure, we are confident that as long as you have at least £500,000 of investible assets, the estimated additional financial return that we can help you achieve should, on its own, be more than sufficient to cover our fee.
Then you can view all of the intangible benefits of advice as the icing on the cake.
We take you through this in detail below.
IS IT WORTH PAYING FOR A FINANCIAL ADVISER?
If great advice was free, you would most likely appoint that adviser in a heartbeat because the value to you would most probably outweigh the cost (zero).
But the cost isn’t zero, so how much is it worth paying for it?
That depends on your situation, so to make this mental calculation, you’ll need to understand what value you will get and how much it will cost you.
Let’s explore these two areas.
WHAT VALUE DO ADVISERS PROVIDE?
Everyone is different, so what you expect to value in an adviser will be unique to you and will almost certainly change over time. To give you a feel for this, we have noted some of the key benefits of using an adviser below.
Help you increase the amount of money you have
a. Improving your potential investment returns by making better investing decisions.
b. Optimising your financial position by making the most of the current tax allowances and pension limits and taking advantage as these rules change.
Help you reach your goals
a. Providing you with visibility and reassurance about your finances to give you the confidence to make big life decisions such as private education, moving house, early retirement, passing money to your children and grandchildren.
b. Planning for your optimal retirement so you feel that you are on-track because you know that you’ll have saved enough and understand how best to draw your pensions.
Help you reduce your risk
a. Protecting you from what you don’t know about, helping you avoid silly mistakes by tapping into our expertise to avoid common pitfalls i.e. not having a will or an expression of wish on your pensions.
b. Ensuring all these sensible steps are actually put in place. We’re all human and personal finance might not always be top of your agenda, so sometimes doesn’t get done.
c. Ensuring that actions are carried out properly such that they protect you when you need them e.g. if insurance is right for your situation, making sure that forms are completed and processed correctly.
Help you feel better
a. Saving you time and stress by dealing with your paperwork, freeing up your time to spend on something more interesting than personal finance.
b. Improving your understanding of your position, simplifying the complex for you so you can better understand your financial decisions, have less worry and more peace of mind.
Even if the above sounds like what you’re looking for, the trouble is that it’s hard to put a monetary value on all these benefits.
SO HOW CAN ONE ATTEMPT TO PUT A MONETARY VALUE ON THE BENEFIT OF ADVICE?
Vanguard’s Adviser Alpha study* is the best attempt at quantifying the potential value of advice.
The study, first launched in 2001 by one of the world’s biggest fund managers, focuses purely on the incremental monetary return people earn by using an adviser versus if they don’t. In other words, it ignores the intangible benefits identified above which would be impossible to translate into monetary terms.
It does this by identifying and attributing a value to the following benefits that good advisers can add:
· Recommending a suitable asset allocation using broadly diversified funds
· Cost-effective implementation of these recommendations
· Rebalancing of your portfolio
· Behavioural coaching to help you stay on track
· Making sensible use of tax allowances and tax-efficient structuring of your wealth
· Helping investors to withdraw money from their portfolio in the most logical way
· Helping clients focus on total return rather than investing for income
Their conclusion is that, in aggregate, advisers can potentially generate a 3% annualised increase in net returns over a long time period.
The report recognises that these increased returns won’t be linear and will, of course, vary from individual to individual. The reality is that it will be impossible for you or us to ever calculate whether 3% was a decent approximation of the value to you over your time working with us.
That’s because you would have to look back at the end of our relationship (not now) and imagine what actions you might have taken without our advice versus the actions that you actually took.
However, other large studies, such as Morningstar’s Gamma research** and a study by The International Longevity Centre*** reinforce the body of evidence suggesting that advisers generate additional money for their clients.
That said, given this uncertainty, let’s be overly conservative, apply a 50% discount to this return and therefore assume an adviser can earn you an additional 1.5% p.a. on your money.
HOW DOES THAT COMPARE TO HOW MUCH IT COSTS?
Our minimum annual fee is £3,550. That suggests that if you’ve got an invested asset base of more than around £236,667 (£3,550 at 1.5%), you are likely to benefit from our service if you would be eligible for our minimum fee.
Importantly, it means that you would effectively be getting all the intangible benefits (not included in the 1.5%) for free.
Whilst there will never be a cast-iron guarantee, we want to feel as confident as possible that we are giving our clients a very high probability of success.
Therefore, we suggest that, as a rule of thumb, £500,000 of pension and investment assets is a reasonable “target” minimum invested net worth to be confident that our service will offer good value.
We see this as a guide rather than a fixed minimum asset base. A very high earner who is able to save a considerable amount each year is likely to gain significant benefit from our service, even if their pensions and investments are currently under £500,000.
Given our fixed fee approach, the more you’ve got in pensions and investments, the better value you are likely to get versus an adviser charging percentage based fees. If you have, or expect to build, wealth of £1m or more, our service is likely to represent exceptional value in both absolute and comparative terms.
WHAT ADDITIONAL VALUE DOES EMPOWER PROVIDE?
1. Fixed fee – you only pay for what you need and value.
2. Highly personalised service – you will always deal with the same small team of highly experienced individuals and have our direct phone numbers. To us you are a person, not a portfolio.
3. No quibble guarantee – if you don’t think you’re getting value in the first three months, we will cancel your contract and refund everything you’ve paid us.
WHAT'S STOPPING YOU?
It is very easy to put off appointing a financial adviser until another day. It can feel like a big decision. But the sooner you get started, the better off you’ll be. You’ll avoid more mistakes, miss fewer opportunities, and get an immediate peace of mind boost that you are on track for an optimised financial future.
To learn more about how our service might work for you, please call us for a free introductory conversation on 020 3488 9505.
Notes
* Putting a Value on Your Value: Quantifying Vanguard Adviser’s Alpha in the UK – Vanguard Research (2020)
** Alpha, Beta, and Now....Gamma - Morningstar (2013)
*** The Value of Financial Advice – The International Longevity Centre UK (2017)
The value of your investments can go down as well as up, so you could get back less
than you invested.
Tax and Estate planning is not regulated by the Financial Conduct Authority.