The advice dividend: Measuring the value of financial advice

It’s understandable that everyday Australians are questioning the benefits of financial advice and whether it’s right for them.  Bad news travels fast and the recent Hayne Royal Commission uncovered some disturbing and unacceptable behaviour in financial services. 

But the headlines are misleading and don’t reflect the experience of most clients of financial advisers.  The Royal Commission was required to investigate and showcase misconduct.  It wasn’t interested in best practice or even typical practice, so we didn’t see any of that.

A recent whitepaper produced by CoreData for the Association of Financial Advisers (AFA) cuts through the headlines and measures the value of advice.  It’s what we call ‘the advice dividend’.

Australians worry about money

First, some context.  According to the Australian Psychology Society, financial issues are the leading cause of stress amongst Australians; higher, even, than worries about health.

Financial stress is bad for our families and it’s bad for our communities. Those who feel financially stressed drink more, sleep less, have worse mental and physical health, and have more conflict in their personal relationships.

Advice reduces financial stress

Australians who have an active relationship with a financial adviser feel more organized, are more confident when making financial decisions and they’re less likely to suffer from financial stress.

When an adviser reduces a client’s financial stress, they may also lessen the client’s tendency to turn to alcohol or drugs, help them sleep better, and improve the quality of their family relationships.

Research underpinning the AFA whitepaper indicates clear emotional benefits from advice.  Advised clients have more peace of mind and greater confidence in managing finances.  And with greater confidence with finances comes confidence in preparedness for key life events, like retirement.  Around eight in 10 clients who have received advice feel prepared for their retirement compared to just one-third of unadvised clients.

But the emotional benefits of advice are just the start.  There are clear, demonstrable and measurable financial benefits as well.

Advice dividend measured at 24% for retirees

The AFA whitepaper investigates the value of advice in three scenarios.  One of those scenarios was for a retiree couple, George (60) and Sarah (56).  George and Sarah made the most of the last years of their careers and accessed the advice of a financial planner. 

Even after the advice fees were paid, George and Sarah retired with 24% more in financial assets than they would have if they didn’t seek advice.  This was achieved by restructuring their cashflow and cancelling non-deductible debt.  As a consequence, they paid $127,000 less in tax and saved over $38,000 in interest expenses.

Access to quality retirement advice

Despite the obvious value of advice, too few Australians access and get the benefits from the services of a professional financial planner as they approach retirement.

With the launch of When Financial Solutions, people in the North West and New England now have access to high quality, specialist retirement advice.  And as the Baby Boomer generation moves into retirement, that’s a good thing.