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 Canaccord Genuity Corp.

The Value of Financial Advice

Sebastien Chevrier - May 07, 2021
Are you getting your money’s worth? Learn how a financial advisor plays an essential role in your financial success.

An annual study that focuses on the effect a financial advisor has on clients’ returns over and above the typical advisory fee found an increase in 2020, reaching 2.88%. In 2019, this figure was 2.79%.

Russell Investments’ study specifically looked at four categories:

  1. Annual rebalancing of investment portfolios

  2. Correcting behavioral mistakes such as overconfidence and herding

  3. Tax-efficient investing

  4. Basic investment management

While this is just some of what a financial advisor’s role is meant to deal with, it’s interesting to see it laid out in a quantifiable way, demonstrating some key components with the ability to directly influence clients in a positive manner year after year. 

Yet this study is just one amongst a large segment of interesting data that has recently come out in regards to the value of an advisor.

Mackenzie Investments, as one example, presented data showing that the value of this advice actually increases over time, the longer a client remains with their advisor.

In addition to discovering that a large number of Canadians who experienced key life events in the past year felt their advisor provided sound advice when it came to large purchases (53%), paying off or consolidating debt (57%), embarking on retirement planning (50%) and conducting wills and estate planning (50%), a CIBC poll also found that in Canada, the majority preferred personal advice rather than using the not always reliable wisdom of the internet.

Both Fidelity Investments and a study by the Globe and Mail found that financial advisors provide clients with invaluable guidance that allows them to avoid costly mistakes made in volatile markets (like we saw in 2020), particularly due to advisors’ ability to keep those clients from making drastic portfolio changes in response to large market moves. 

In that Globe and Mail piece, they referenced a Charles Schwab study of 137,000 retirement plan participants with self-directed brokerage accounts. Those who used an advisor had almost double the average account balance of those who did not. RBC Global Asset Management found even more surprising numbers, but ones that correlate with the preceding data we’ve presented: Over a 15-year period, investors with advisors have almost four times the assets of those who do not. 

Misconceptions about seeking financial advice

One particular set of data that caught our eye was from Cirano, which found that 44% of non-advised participants in a study they conducted felt they needed more than $50,000 to qualify for financial advice. Not only is this untrue, but Cirano found that such a belief could prove costly. In fact, they discovered that an advised household’s assets are worth about 55% more than assets of a non-advised household after just four to six years of financial advice. The additional value reaches 290% after 15 years, or over 3.9 times the value of assets of equivalent non-advised households! Additionally, they found that investors who dropped their advisor between 2010 and 2014 saw a 34% decline in their asset values, while those who kept them saw an increase of 26%. These aren’t small differences. 

We collected the above data from a variety of sources as an attempt to provide numerous samples of research which arrived at the same conclusion; using a financial advisor can prove beneficial over the long run. It’s one thing for us to say this in our meetings with clients or on the blog, but it’s another to be able to point to different respected sources as evidence of the same.

With this being said, it is always important for you to do your own research before choosing to go with an advisor, which includes knowing the services they offer and the fees you will be charged. When choosing an advisor, you are not only trusting them with your money, but with your future. Regardless of what the average data says, the particular individual/team you choose to work with also makes a large difference in what that future can look like, so making the right choice is critical. It’s important to work with an advisor who acts as a true fiduciary within a framework that allows for the client’s needs to be prioritized, who has a strong knowledge and background in financial planning and investment management, understands your needs (physicians have unique circumstances that need to be considered), and who provides a high level of service for a fair cost. 

If you are looking for assistance with your financial plan and building your financial future, we are here to support you. We are committed to providing financial guidance tailored to suit the needs of Canadian physicians, Contact us to learn more. 

We regularly share financial posts on both our blog and Twitter, so continue to check both for the latest.

 

References:

https://russellinvestments.com/ca/resources/financial-professionals/value-of-advisor 

https://www.mackenzieinvestments.com/en/investor-education/all-about-advice#panel1

https://www.newswire.ca/news-releases/human-vs-machine-cibc-poll-finds-most-canadians-value-personal-advice-over-a-search-engine-898240420.html

https://www.fidelity.com/viewpoints/investing-ideas/financial-advisor-cost

https://www.theglobeandmail.com/investing/globe-advisor/advisor-news/article-do-those-who-work-with-a-financial-planner-get-better-results/

https://www.rbcgam.com/documents/en/articles/the-value-of-working-with-a-financial-advisor.pdf

https://www.cirano.qc.ca/files/publications/2016s-35.pdf