Advisers know the value they add to their clients’ outcomes and for many, it’s a reason to stick around in an industry plagued by increasing cost and time pressures.
But, if you were asked to put a precise number on the value you add, would you be able to?
It’s a difficult proposition, mainly because there are many components of the advice process and some aren’t easy to attach a figure to. For instance, it’s not always possible to put a fixed value on the return a client will get from behavioural coaching over many years that redefines their understanding of risk and goals.
Recently, Russell Investments has quantified what it thinks the value of a financial adviser is today, based on a number of inputs around the services advisers provide.
“In 2021, we believe the value an adviser in Australia adds approximately 5.2 per cent per annum to a client's portfolio,” the investment firm said.
So, how did it come up with that figure? The breakdown is based on five components: asset allocation, behavioural coaching, cash optimisation, tax-effective investment and planning and expertise in additional wealth management services. The latter, however, has been listed as “priceless”.
Avoiding costly behavioural mistakes
The investment firm recognises a large part of advisers’ value is “intangible” but said giving clients a percentage figure may help to articulate the difference having an adviser can make.
The largest input was in fact behavioural coaching, which Russell Investments said “on its own could offset the fee that many clients may pay”.
The firm estimates behavioural coaching alone accounts for approximately a two per cent annual return. Part of that is helping clients to avoid very common and costly mistakes.
Source: Russell Investments Value of an Advisor Report, 2021.
“We know that without the disciplined actions of an adviser, loss-averse or overconfident investors can make well intentioned, but poor decisions that can damage their personal
Wealth,” the 2021 report said.
Two key mistakes Russell Investments identified from last year from unadvised investors were selling out too quickly when COVID-19 struck or trying to ride the volatility wave.
In terms of how to express that to clients and potential clients, Russell recommends having a clear and consistent “framework” around when and when not to make changes to a portfolio. It also suggests having models for different clients and scenarios around portfolio changes.
Taking time pressure off clients
According to Russell Investments, one of the key value propositions of an adviser is their ability to save clients time. Its analysis found advisers saved clients at least 10 hours of time on the initial plan and statement of advice.
“For many clients, the value of an adviser relationship is about having someone that has the expertise to do something more effectively and efficiently than they can themselves,” the report said.