The true value of advice to a client

Financial advisers have added at least 5.7 per cent in value over the past year, according to Russell Investments.

In the firm’s annual Value of an Adviser report, it found this value was added via providing counsel to clients on matters such as tax planning, social security and estate planning. This included avoiding them making kneejerk decisions, reweighting their portfolios and encouraging clients to remain disciplined. 

The 5.7 per cent figure was calculated by Russell by adding together the estimated benefit on asset allocation (1.1 per cent), behavioural coaching (3.3 per cent) and tax planning (1.3 per cent). 

It flagged asset allocation accounts for more than 85 per cent of a portfolio’s overall outcome, and said there are two types of investors who benefit most from professional advice: disengaged investors who are opting for a one-size-fits-all or default option, and engaged DIY investors who fail to consider all the risks that can affect them. 

Regarding tax planning, Russell reminded it is not solely the remit of accountants as individuals can easily be caught out by the ever-changing rules. Investment strategies such as low turnover strategies and tax minimisation overlays can also help clients, while advisers can also flag eligibility or entitlements for childcare and businesses.

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Only 12 per cent of people considered tax effectiveness as among their top three considerations when making investments, according to the ASX.

Neil Rogan, managing director and head of distribution in Australia and New Zealand at Russell Investments, said: “Advisers are much more than financial experts – they are also behavioural coaches who help clients cope with the emotional roller-coaster of both investing and life itself. Advisers’ practical support also helped clients maintain strategies like dollar cost averaging as rising inflation cut their disposable income.

“It’s important advisers continue to communicate their value to clients. This report shows that if an adviser can help clients avoid common behavioural mistakes, they likely provide value above and beyond their fees.”

Looking at how advisers can maximise their value further with clients, the report recommended: 

• Have a clear value proposition, advice philosophy, and service model that helps illustrate the service you provide.
• Have existing client case studies that highlight how elements of your expertise helped them and the outcome you delivered. Share these with new clients to understand some of the intangible values you deliver.
• Understand the different motivations for seeking advice and have examples to use with new clients on how you deliver sometimes intangible yet appreciated value.
• Do you have a framework for handling challenging client conversations? Do you have a repeatable process for client reviews?
• Have you developed a plan regarding client engagement when things go wrong?
• How consistent is your message, and is it simple and concise?

Regarding asset allocation, Russell Investments recommended: 

• Spend time articulating why getting the right asset allocation can be a key driver of achieving goals and the consequences of getting it wrong.
• Remind clients of the art and science of understanding true risk preferences.
• Use your investment philosophy to demonstrate how you select and implement an appropriate asset allocation to achieve their goals.