With inflation and interest rates on the rise, many Australians are looking for ways to trim their budgets. For some, that may mean cutting ongoing costs, including financial advice.
On the adviser and practice side, inflation will put upward pressure on fees, which may mean more conversations with clients to justify the current or future value of the advice provided. Adviser Ratings research shows the median fee rose above $3500 last year.
With all that in mind, we’ve compiled some of the research that demonstrates the edge advisers may offer. It may help practices put fees into context for clients.
1. Reiterating the dollar value of advice
Clients often engage advisers to improve their future financial position, but when short-term costs are piling up, it can be difficult to remember the long game. Some clients may need a meeting, phone call or email to remind them of the value advisers can add to a portfolio or future plan.
Russell Investments last year estimated advisers could add 5.2 per cent or more in value during the second year of the pandemic, taking into account appropriate asset allocation, behavioural coaching, cash optimisation, expertise in wealth management and tax-effective investment and planning.
For fee-focused clients, putting ongoing costs in the context of the returns, discipline or coaching an adviser provides may be helpful.
2. A steady voice through turbulence
Many factors have been giving investors the jitters this year. We’ve already mentioned interest rates and inflation, but pandemic aftershocks and market volatility may also be keeping some people awake at night – especially those close to retirement.
Research we conducted earlier this year, however, showed fewer people who have their money with advisers lacked confidence about their future finances. Among unadvised Australians, two-in-five said they had little to no confidence about their finances for the next 12 months, compared with just a third of advised clients.
While wealth differences may partly explain this, adviser alpha and the way an adviser can help reduce clients’ financial anxiety could also be at play.
3. More benefits beyond the bottom line
Some value advisers add is more difficult to quantify but worth noting. For example, our research showed advice clients were more likely to rate themselves as highly financially literate.
In fact, the mere presence of an adviser in a region has been linked to lower financial fraud rates, research carried out by the University of NSW (UNSW) Business School, with input from Adviser Ratings, found. The UNSW researchers said this may be because having advisers around increases financial literacy at a community level, which makes people better at fraud detection.
For clients themselves, stronger financial knowledge could be advantageous in volatile markets.
Given the complex economic environment we find ourselves in, being able to quickly articulate where you add value will probably become a key skill.
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