What’s the value of working with a Financial Adviser?

If you’re thinking of engaging with a financial adviser, you might have some questions before you sign on the dotted line (writes Chesterton House Chairman and founder, Andy Jervis). Close to the top of the list is likely to be something like; “Will working with this person or firm actually make me better off?”

It’s a fair question, given that adviser fees can range from 0.5% up to 1.5% of the value of your investments annually, or even more. At Chesterton House our annual fees for advice are between 0.5% and 1% a year depending on the amount you’ve invested, (you can find more information about our fee scales on our website).

When I first created the business that became Chesterton House in 1985, I set out to provide value for money and it’s always been important to me that we clearly deliver that value. Because, let’s face it, if we can’t add something tangible to our clients’ total wealth, why should we keep on doing what we do? I could never have maintained my enthusiasm for our business and my career if I didn’t think we were genuinely adding value to people’s lives.

But these days there are investment organisations that make a big deal of offering low fees, and it can be tempting to try doing-it-yourself with one of these  – at first glance, cheaper – providers to save money. But headline costs aren’t the only factor, and what seems cheap can often be more costly in the long run.

So where is the extra value in working with an adviser?

Putting a number on the value of advice

The value that a good financial planner can add to your life and your money can be difficult to quantify, because it’s partly subjective. It’s hard to put a price tag on peace of mind, sharing ideas with a trusted adviser, and knowing you’re on track. However a recent piece of research by Russell Investments (as reported on kitces.com) has put an estimate on the value of working with an adviser, taking into account the various aspects of a long-term planning relationship.

I’m very confident about the value that we add, and the Russell report supports my view. Their report estimates that an adviser typically adds 4.92% a year of additional value, far exceeding the fees paid. How did they arrive at this figure?

Where that value comes from

The Russell report identifies a number of important benefits that a financial planner can deliver. Firstly, assistance from an advisor in creating an appropriate asset allocation for a client can add 0.26% of value annually, for example by holding a smaller cash allocation than investors might hold on their own.

Secondly it estimates that behavioural coaching by an advisor can add 2.30% of value each year by helping clients stay the course during volatile periods (other studies have shown an even greater added value due to this factor).

Thirdly, the ability of a competent financial planner to provide personalised family wealth planning that goes beyond investment management, such as retirement and estate planning, could add another 1.13% of value each year.

Finally, tax-aware portfolio management, including strategic asset allocation, choosing tax-efficient investment vehicles, and taking advantage of tax breaks and allowances, was estimated to offer 1.23% of value annually.

These figures don’t seem too far out to me. Over many years of working with people on building and servicing their financial plans, there’s no doubt in my mind that the various factors mentioned do, indeed, offer a positive and quantifiable increase in my client’s total wealth. Sometimes these gains can be significantly more than the figures quoted, sometimes less. But they do exist in every case.

A note on research

Whilst it’s clear that Russell has made a serious attempt to put a quantifiable value on adviser value, these figures are clearly estimates and different clients will get different results. It’s also based on a U.S. study and the results for U.K investors may differ. Nevertheless, the underlying message is clear. Advisers do deliver value to their clients over time that isn’t just about investment performance, but also covers a range of other activity that, regularly reviewed and implemented over the lifetime of a client-planner relationship, can not only add significantly to your wealth but also contribute to your wellbeing, peace of mind and confidence in financial decision-making.

Why the adviser you choose matters

I should also remind you that not all advisers offer the range of services that help deliver this extra return. That’s why it’s important to check that the adviser you select can deliver the regular investment, tax, coaching and planning advice that makes the difference. By working with Chesterton House you can be sure that you have partnered with a firm that really does deliver a holistic, planning-centred service that can accelerate your wealth in many different ways.

Contact us to arrange a free initial conversation. And if you’re a client already and have any thoughts about how we’ve helped create extra value for you, I’d love to hear from you. There’s plenty of you out there after more than 40 years of helping people!

Andy Jervis