2020 was no doubt a year of significant disruption and change. Russell Investments have recognised the important role that advisors have played during this period in providing valuable support, guidance, perspective and connection – for more than just investment advice. Helping clients achieve their financial and personal goals is about making the right decisions in the short term and providing a steady hand in times of panic and crisis. The value of a quality advice relationship is about maintaining a long perspective.
In their 2020 Report, Russell Investments examined the various components of an adviser’s value proposition and estimated that advisers deliver value of at least 5.2% or more every year to their clients beyond investment only advice. This tangible 5.2% is summarised as follows:
- Appropriate Asset Allocation (0.9% p.a.): this is about people having the wrong investment option with no reference to their personal circumstances. An adviser brings the necessary skills to construct appropriate well diversified portfolios.
- Behavioural Mistakes (2.2% p.a.): this is probably the most important attribute that advisers bring, it’s the behavioural coaching aspect of preventing clients from making stupid decisions.
- Cost of Cash (0.6% p.a.): advisers are able to appropriately utilise cash as we do with retirement cashflow needs and holding 3-5 years of pension payments in Cash & Fixed Interest. Getting this balance between cash and long-term growth is a real benefit provided to the client.
- Expertise = Priceless: very hard to quantify adviser expertise but where we deliver true wealth management is with:
- Disciplined decision-making frameworks
- Increased confidence as a result of ongoing education
- Providing perspective
- For people who are time poor, they can partner with an adviser to create efficiency and take the effort out of creating their own investment solution
- Tax-effective investing (1.5% p.a.): This is achieved through –
- Structural tax strategies like salary sacrifice arrangements, transition to retirement
- Portfolio strategies when we rebalance and consider the CGT implications
- Accessing tax effective investments like managed funds which may not be available to the retail investor
- Platform trading which calculates a tax position based only on the client’s portfolio
The % calculated in the report is very subjective but it does outline tangible benefits that our advice provides.
Paul Horn
