Good financial advice could add almost 6 per cent to New Zealanders’ wealth in 2023, according to the latest Russell Investments ‘Value of an adviser’ study.
The 2023 edition of the Russell report – the 10th in the global series and the third fashioned for NZ-specific conditions – estimates Kiwi portfolios would be better-off this year by 5.9 per cent by using a financial adviser.
Last year the Russell NZ value of advice stood at 4.3 per cent with some changes in the calculation in the 2023 model.
By helping clients focus on real returns rather than headline term deposit rates, for example, Russell estimates advisers could improve portfolio outcomes by 3 per cent alone.
And ‘behavioural coaching’ that prevents clients developing sell-low, buy-high habits could increase annual returns by 1.8 per cent, based on a Morningstar analysis of US investor experience.
“When we look at the 15-year period from 2009–2023, we’ve found that the average investor’s returns were 1.8% lower than the overall market’s returns,” the Russell report says. “This is an illustration of the value that can be added by keeping clients invested, and the potential costs of moving in and out of the market over time.”
Advisers can also boost client returns with appropriate diversification techniques that remove another common behavioural quirk, ‘home country bias’, the study says.
For instance, using KiwiSaver as a proxy for the retail market, average NZ investors have almost 40 per cent in local assets compared to just 15 per cent for the NZ Superannuation Fund (a stand-in for institutional-style investing).
The average Russell NZ client portfolio holds about a quarter in home-based assets.
“Home-country bias limits the amount of diversification in investor portfolios and exposes investors to significant country-specific risk,” the report says. “In the New Zealand equity market, there is a high concentration and reliance on a small number of companies.”
“… Being highly exposed to the results of a handful of companies is great if everything is going well, but it’s a whole lot more challenging if they’re not.”
Customised advice catering to complex individual and family financial needs and ‘active rebalancing’ would add a further 0.8 and 0.3 per cent, respectively, to client portfolios every year, Russell estimates.
“… the work completed for the clients through the defining moments of their lives, to ensure their investments align with their goals, to provide expertise on taxes, insurance, careers and major purchases, to plan their retirement, long-term care needs, and legacy—among myriad other services—has value,” the report says. “We believe this comprehensive service can be worth 0.75% more in value over and above the basic asset management that an investor can get from an adviser.”
Russell celebrates the 10th anniversary edition, too, with a top 10 list of lessons gleaned from the series to date, headed by an observation that the role of an adviser has changed significantly over the decade from “essentially a stockbroker” to a multi-service provider.
Matthew Arnold, Russell NZ head, said the new report highlights once again why “most investors will benefit from seeking professional financial advice”.
“Our 2023 Value of Advice research identifies four ways that advisers can add value for their clients,” Arnold said. “We hope the research assists the local adviser community in articulating their potential value add to their clients and prospects.”