These days we’re obsessed by value — not just businesses, but individuals too. We all want to make the most of the limited financial resources at our disposal, and quite right too.
There is however a danger in constantly looking at value in purely monetary terms. In other words, how much will it save me, in pounds and pence, to buy this particular product or service as opposed to that one Financial advice is a classic example of where the focus on monetary value isn’t particularly helpful.
Yes, there are studies showing that people with advisers amass more financial assets than those without. A recent report by the International Longevity Centre compared the wealth, in 2014, of two groups of people; the first received financial advice in the period 2001-2007 and the second didn’t.
The researchers found that the “affluent but advised” had accumulated on average £12,363 (or 17%) more in liquid financial assets than the “affluent and non-advised” group. The contrast was even starker among the less well-off. The “just getting by but advised” accumulated on average £14,036 (or 39%) more in assets than their non-advised peers.
Research by Vanguard Asset Management shows that a good adviser can add, on average, 3% a year to the value of a client’s portfolio. About half of that value, Vanguard calculates, comes from on-going behavioural coaching. Compounded over several decades, that can make a huge difference.
But studies such as these only tell part of the story about the value that an adviser adds. In fact, managing your investments is a relatively small part of what a modern adviser does.
The true value of an adviser centres around the following:
- helping you work out your priorities and establish a series of goals;
- producing a plan that reflects your priorities and maximises your chances of achieving those of goals;
- reviewing and adjusting your plan as, inevitably, your personal circumstances change, and
- ensuring that you stick to your plan and don’t allow your emotions or irrational biases to blow you off course.
So, what sort of a difference does this make in practice? Well, it’s no exaggeration to say that it can mean the difference between living a happy and fulfilled life and not.
A good adviser will ask you difficult questions that many of us go through life avoiding. For example, is your work quite as important to you as you say it is? Would you like to spend more time with your children or grandchildren? Do you really want to buy a bigger house or would it make you happier to spend the extra money on family holidays, or perhaps give it away to people who need it more than you?
Something else that an adviser can do for you is to work out how much money you actually need. There’s little point in carrying on accumulating wealth for the sake of it. Many people think they should keep on working until a certain age because that’s the norm or that’s what their parents did. But it may be that you already have enough money to retire now, if your adviser puts an appropriate investment strategy in place.
How can you put a value, then, on spending more time with your loved ones? Or being able to give up a job you’ve fallen out of love with five years earlier than you planned to?
One last thing. Ask yourself, how precious is your time? Yes, you could probably write a perfectly good financial plan yourself; you could, fairly easily, put together your own investment portfolio; and you could probably work out for yourself how much money you need to retire on.
By the same token, you could probably redecorate your house or learn how to service your car. But is that really what you want? Wouldn’t you rather spend the time doing something you actually enjoy?
Having a good adviser means more time to do what you really want to. How can you put a price on that?
Robin Powell is an award-winning journalist specialising in investing and personal finance