What is the value of financial advice when it comes to your retirement?

When it comes to your retirement finances, several research studies have investigated whether there are measurable benefits from getting professional advice from a financial planner.

According to ongoing research by Morningstar in the US, a good planner can increase your wealth – or save you from losing – about 2%. This added value comes from:

• Creating an adaptable withdrawal strategy
• Allocating more to guaranteed income products
• Utilising your total wealth to build your investment portfolio.

The additional 2% value also comes from your adviser helping you over long time periods to make good decisions in relation to your savings and remaining invested during market volatility. Advice about tax-effective strategies and estate planning also add value.

Vanguard has also estimated the so-called ‘Adviser’s Alpha’ added to a client’s investment return. Its research indicates good financial advice adds approximately 3% in returns (after fees and taxes).

The additional return comes from more than just good investment selection; it’s also derived from behavioural coaching, portfolio construction advice and wealth management. Good advisers can also add value by assisting you with cost-effective asset selection and rebalancing, together with tax-efficient withdrawals and asset liquidation.

If you’re still not convinced, research by Envestnet PMC Quantitative Research Group echoes the Vanguard findings. The US firm’s work also found advisers added value up to 3% annually in enhanced returns.

Added value from financial advice

Source	Annual value-add
Financial planning	>50 bps (0.5%)
Asset selection and allocation	52 bps (0.52%)
Investment selection
Active management:	67 bps (0.67%)
Passive management:	61 bps (0.61%)
Systemic rebalancing	30 bps (0.31%)
Tax management	100 bps (1%)
Total	Around 3%

Source: Capital Sigma: The Advisor Advantage, Envestnet PMC, 2019

Is professional financial advice worth the money?

According to those receiving financial advice, it seems the answer is ‘yes’.

A recent study by Fidelity International found more than seven in ten (71%) Australians currently receiving financial advice believe it has generated more value to them than it has cost.

Even those who currently didn’t receive financial advice recognised the potential benefits, with the majority believing advice would give them greater peace of mind financially (64%) or greater control over their financial situation (63%).

For more information, read SuperGuide articles:

• Independent financial advice: Why it’s important and how to find it
• 5-step guide to the different types of financial advice on offer
• 7-point guide to what happens when you meet a financial adviser
• Find an Australian independent financial adviser

2. Your emotional wellbeing: How much can advice help?

Studies indicate personal finance is one of the main sources of stress for Aussies of all ages. The Australian Psychological Society’s annual Stress and Wellbeing in Australia surveys found over a five-year period that personal finance topped the list of worries for 49% of survey participants.

So, how valuable is advice when it comes to non-financial benefits?

For most people, being financially secure brings peace of mind and a positive effect on their emotional wellbeing. The Fidelity study found 49% of Aussies receiving financial advice said their mental health benefited from receiving advice and 38% said their family life had improved.

Do people receive advice about retiring?

Although advice gives people a sense of control over their finances, 54% of recent retirees had not taken part in some form of retirement planning or received advice, according to a 2019 study by Industry Super Australia (ISA).

Even among people who expect to retire in the next two years or so, the ISA report found 17% had no formal financial plan and were waiting until they were closer to retirement.

Among people who had retired due to lack of work opportunities, ill health or needing to care for someone else, 60% had done no planning prior to their retirement.

For more about early retirement, read SuperGuide article Taking your super early due to ill health? 7 tips to help.

Can advice lessen your retirement worries?

Getting advice reduces your worries once you are in retirement, according to research by National Seniors Australia (NSA) and Challenger. They found retirees who received advice were less likely to worry frequently about running out of money.

Acting on the advice you receive is also important. People who had received advice but not taken any action, were more likely to worry frequently (25%) and be worried in general (64%).

Was financial advice received in the past 12 months?

Worry frequency for outliving savings and investments	Yes – advice used to make changes	Yes – but advice not acted on yet	Advice not received in previous 12 months
Frequently worry	17%	25%	17%
Occasionally worry	37%	39%	34%
Used to worry, but not now	15%	10%	11%
Do not worry	29%	24%	35%
Don’t know/rather not say	2%	1%	2%

Source: Retirement income worry: Who worries and why?, National Seniors Australia/Challenger, January 2020

Research undertaken by Sunsuper as part of its 2017 Value of Advice Report mirrored these findings. It found consumers believe the value of the financial advice they received extended far beyond monetary benefits.

Study participants believed the advice they received was “worth it” in terms of their lifestyle, financial security and peace of mind:

• 77% believed the advice had helped them feel prepared for retirement
• 72% believed they had a better understanding of what to expect in retirement
• 80% believed advice had given them more peace of mind
• 75% believed the advice they received was worth more than it

Reducing the retirement blues

It seems pre-retirement advice or training programs do more than just make you feel prepared. They also help you adjust to your new lifestyle and to feel more positive about it.

In Michael Longhurst’s book Enjoying Retirement, he points out retirees who seek advice or training before they retired experienced significantly lower levels of depression than those who received none. For more information, read SuperGuide article Adjusting to retirement: 8 factors that can help.

Longhurst’s research also found receiving pre-retirement education was associated with significantly more positive attitudes to life and greater retirement satisfaction.