According to research conducted by investment manager Russell Investments, Australians with a financial adviser are 5.9 per cent better off than non-advised investors.

The 2023 ‘Value of an Adviser Report’ report calculated this value by examining the five components of advice delivery, citing specific values to three components:

• behavioural coaching (3.4 per cent);

• suitable asset allocation (1.2 per cent);

• tax-smart planning; and investing (1.3 per cent).

Additionally, it found “choices and trade-offs” and the “expertise gained over an adviser’s years in the profession”, as having a “variable” and “priceless” impact, respectively.

“This [5.9 per cent] is substantially higher than the typical adviser fee paid by clients and a validation of the holistic service that advisers provide to clients,” the report said.

“It is a function of their ability to help clients adapt as markets, regulations, and their own circumstances change.”

Articulating the 1.2 per cent value add from suitable asset allocation, the report said asset allocation determines 85 per cent of the outcome for an individual ahead of the selection of the actual assets within a portfolio.

“It is also, though, perhaps the most underestimated element of financial advice by the general public,” the report said.

“Retail investors are more inclined to remember the returns of individual stocks – such as this year’s gains from the so-called magnificent seven AI stocks – than how asset allocation laid the foundation for overall risk-adjusted returns.”

For behavioural coaching – which added 3.4 per cent – the report identified the benefits a properly constructed portfolio can have during periods of volatility, citing the recent Covid-19 pandemic and the war in Ukraine.

“Without the guidance of advisers, investors can fall into the trap of buying when markets are bullish and selling when sentiment turns bearish,” the report said.

“There is real value in the ability of advisers to help clients maintain their long-term strategies in the face of unnerving volatility.”

For the 1.3 per cent value added from tax planning, the report found tax knowledge is as much part of an adviser’s role as a grasp of markets or estate planning.

“In fact, the importance of tax know-how becomes more critical every year,” the report said.

“This is perhaps most obvious in superannuation due to the continued introduction of caps designed to limit the amount of capital that people can hold in tax-effective retirement funds. But it is equally important outside superannuation, in both investing and social security.”

Professional Planner