How financial advice helps create wealth.

An article based on a 16 year study by Vanguard Investments Pty Ltd. 

         

 

Last month we reported on a 16-year study by Vanguard Investments that found a financial adviser effectively adds around 3% to the value of a client’s portfolio over time.

The real significance of this is that you can have a finance professional take care of one of the most important jobs in your life (funding your retirement) for very little, if any, real cost.  This can even be the case for those with smaller portfolios.

However, for many people the main problem is getting started and the cost is often seen as too high or the adviser focus can seem a bit too much on their needs rather than the client. 

A major reason for this, unfortunately, is that increased regulation and monitoring has meant advisers have moved to a fee-based model and away from the commissions of yesteryear.  This is a good outcome but it has meant advisers have had to increase entry costs which, in turn, has led many potential clients to see these costs as too high.  A proverbial Catch 22.   

It is because of this sort of conundrum that firms like Vanguard Investments have undertaken long term studies.  The outcome from their work is that a WIN/WIN opportunity exists for all. 

However, this benefit isn’t just from better investing, though that will often be the case.  It’s the more holistic approach that wins the day.  Vanguard Investments identify the following areas as those that will generate this positive outcome:

  • Suitable asset allocation
  • Cost-effective implementation (expense ratios)
  • Rebalancing
  • Behavioural coaching (Vanguard Investments found this to be the most significant contributor because there are some tasks people struggle with such as budgeting and expense management.  Behavioural coaching addresses this issue).
  • Tax efficiency (An example here is where an investor with a modest portfolio lost more than $250,000 in value over a 10-12 year period because they thought the three stock brokers they used were looking after tax related issues.  They weren’t!  If the planner had been involved sooner the outcomes would have been significantly different.)
  • Total returns versus income investing.

 

Finally, the concerns many potential clients have over the cost of financial planning means they delay getting help early enough which, in turn, threatens the retirement outcomes they want to achieve. 

 

Peter Graham
PlannerWeb / AcctWeb

  

More Articles

Treasurer unveils design details for payday super

  The government has released further details about the design of its payday super policy including an...

Read full article

Government releases details on luxury car tax changes

  The draft legislation aims to modernise the luxury car tax by tightening the definition of a...

Read full article

Are you receiving Personal Services Income?

  Do you earn personal services income (PSI)?   . While most people may think that it only...

Read full article

Taxing unrealised gains in superannuation under Division 296

  Australia’s superannuation system has seen a number of significant changes in recent...

Read full article

The Leaders Who Refused to Step Down 1939 – 2024

Check out the The Leaders Who Refused to Step Down 1939 ...

Read full article

Investment and economic outlook, September 2024

The latest forecasts for investment returns and region-by-region economic outlook. . A recent rapid...

Read full article

ASIC extends reportable situations relief and personal advice record-keeping requirements

ASIC has extended the reportable situations relief and personal advice record-keeping requirements on the same...

Read full article

Economic slowdown drives mixed reporting season

Many Australian companies are still battling economic crosswinds and headwinds.   . Hundreds of...

Read full article

Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

Financial Advice Sydney and the North Shore Office based in Gordon NSW

Financial Services Guide - Disclaimer & Privacy Policy

^