Russell Investments has repriced the value of financial advice in 2024 at 4.7 per cent in its fourth annual review of the NZ market.
The Russell gauge fell from almost 6 per cent last year but the somewhat notional figure still highlights how financial advice adds value for clients well above fee levels.
In a slightly simplified format this year, the value-of-advice estimate is based on a 1.4 per cent gain on average to clients from “appropriate asset allocation” and a further 3.3 per cent boost from “behavioural coaching”.
According to the report, “the importance of asset allocation is underestimated by the general public”.
“Retail investors are more inclined to remember the returns of individual securities than how asset allocation laid the foundation for overall risk-adjusted returns,” the Russell paper says.
But while advisers guide clients into risk-weighted portfolios that match their goals and temperament, the report highlights two groups of investors most prone to making ill-informed asset allocation decisions.
“The first are disengaged investors who consciously or unconsciously opt for the one-size-fits-all default options offered by their KiwiSaver provider for simplicity’s sake. By definition, these default options take limited – if any – account of the personal circumstances or needs of an individual,” the report says.
“The second category is made up of engaged investors who build their own portfolios but sometimes fail to consider all the potential risks – or even all the opportunities available to them.”
But professional advice offers even more value by ensuring clients avoid common investment pitfalls and keeping them on-track through all market conditions, Russell says.
Aside from asset allocation and behavioural coaching, advisers also earn their fees by helping clients make difficult life choices – when to buy a home or retire, for example – and provide expert input on financial-adjacent issues such as social welfare benefits or tax.
In a release, Neil Rogan, Russell Australia and NZ head of distribution, said: “Advisers are much more than financial experts – they are also behavioural coaches who help clients cope with the emotional rollercoaster of both investing and life itself.”
The Russell NZ report is part of a global program designed to showcase the value of advice – and encourage advisers to communicate the message to clients.
According to the study, the headline value-of-advice figure “shows that even if advisers were only able to help people avoid common behavioural mistakes, they have likely provided value above and beyond their fees”.
“But once their other services are included the total value of advice is clearly significant.”