In a year marked by economic uncertainty, rising inflation, and global financial turbulence, Australians who sought the guidance of a financial adviser found themselves 5.9% better off annually than their non-advised counterparts.
The insights from Russell Investments’ 2023 Value of an Adviser Report shed light on the pivotal role that financial advisers play in helping Australians adapt to and thrive in their ever-evolving financial landscape.
This year’s report underscores why Australians turn to financial advisers, especially in a year marked by mounting inflation rates and the looming possibility of a global recession, which fuelled uncertainty among investors and dominated headlines.
Neil Rogan, Managing Director and Head of Distribution in Australia at Russell Investments, emphasised the pivotal role of advisers, stating, “For the past two years, advisers have consistently elevated their value to clients, reaffirming their status as the trusted experts Australians seek when confronted with uncertainty in domestic and global investment markets.”
In 2023, advisers’ value increased by one percentage point compared to the previous year, rising from 5.8% to 5.9%. Russell Investments assesses this value based on five fundamental components of advice delivery: behavioural coaching (3.4%), appropriate asset allocation (1.2%), tax-savvy planning and investing (1.3%), decision-making and trade-offs (variable), and the immeasurable value of an adviser’s years of professional expertise.
Rogan pointed out, “Often, non-advised investors make impulsive decisions and alter their investment strategies without adequate consideration for the long term. This is where advisers serve not only as financial guides but also as behaviour coaches. In 2023, the impact of behavioural coaching alone could contribute as much as 3.4% to the value of investors’ portfolios.”
Furthermore, the report highlights that advisers added value in asset allocation to the tune of 1.2%. It underscores the significant long-term benefits that clients with a guided investment strategy can enjoy. Asset allocation, according to the report, continues to be the primary driver, responsible for over 85% of an individual’s investment outcomes.
“Retail investors are more likely to recall individual stock performance rather than focusing on broader asset classes and the overall investment strategy. An adviser adds value by bringing a disciplined and sensible approach to meet their clients’ needs,” Mr Rogan said.
“Non-advised Australians can find themselves in a single strategy super product lumped with other members and not really addressing their long-term financial goals. The potential 1.2% in value from an adviser achieved through carefully considered asset allocation can make a big difference to an investor’s outcome.”
An adviser with tax savvy planning and investing skills contributes another 1.3% in value, and this is crucial to ensure clients’ portfolios don’t unnecessarily leak funds. Given that only 12% of investors list overall tax effectiveness among their top three investment considerations when making investments, there’s an opportunity for advisers to demonstrate their value further.
“Investors need to look beyond their annual tax returns and recognise there are tax implications for many financial decisions now and into the future. Advisers can structure investment portfolios to be tax efficient and work through the complexities that come with tax planning, ultimately optimising their clients’ outcomes,” Mr Rogan said.
The report shows a client’s wealth journey also extends beyond the quantifiable value provided by their adviser. Retirement planning, life insurance and social security are among many skills that advisers use in their toolbox. Advisers should also recognise the contribution they make to bridging the gap in Australians’ financial literacy.“Advisers act in many roles and are often guiding clients through their best and worst times in life. In many circumstances, they are a sounding board, a voice of reason and an advocate. Beyond the technical skills it is vital that advisers are equipped to manage and communicate their value in building successful relationships and tailoring financial plans that give clients peace of mind,” Mr Rogan said.
The Role of advisers in uncertain times
Findings from Salesforce Research’s Connected Financial Services Report reveal a significant shift in customers’ financial security sentiments compared to the previous year. In 2023, 42% of customers reported feeling less financially secure, a noteworthy increase from the 30% who felt the same last year.
This decline in financial confidence can be attributed to various factors, including rising commodity costs, increasing interest rates, and global events causing turbulence in financial markets. The resulting surge in prices, from essential goods to fuel, has heightened the overall cost of living and subsequently increased financial anxiety among individuals.
These challenging times have led customers to seek guidance from their financial institutions, recognising the need for assistance in navigating economic uncertainties. However, the effectiveness of this assistance varies, with only one in five customers stating that their financial institution significantly aided them in preparing for the current economic climate, while more than a third felt they received no help at all.
One standout contributor to the value financial advisers provide is behavioural coaching, which alone can contribute 3.4% to the value of investors’ portfolios in 2023. Additionally, advisers have enhanced their value by one percentage point compared to the previous year, with their total value to clients now reaching 5.9%.
The report also emphasizes the significance of asset allocation in driving investment outcomes, contributing 1.2% to the value. In uncertain times, non-advised investors often make hasty decisions, emphasizing the importance of advisers in not only providing financial guidance but also acting as behavioural coaches.
Furthermore, the report sheds light on customer switching behaviour within the financial services industry. Approximately 25% of customers switched banks in the past year, with over a third switching insurers and wealth managers. A better digital experience emerged as the primary reason for these switches across all sectors. In addition to digital experience, the physical location was another factor that influenced customers’ decisions, particularly in wealth management.
Despite the importance of digital experiences, customers noted several areas for improvement in the services provided by their financial institutions. Poorly integrated non-intelligent chatbots were a significant source of digital friction. Other challenges included difficulty finding information online, inconsistent customer service, and impersonal services.
Customers expressed a strong preference for managing routine financial tasks online, including applying for debit and credit cards, opening accounts, renewing coverage, changing coverage, and conducting investment and financial planning. A clear digital account opening process was a priority for 71% of customers when choosing a financial services provider.
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