Why Financial Advice works

I’m going to do something here that I generally try to avoid; in fact most people particularly in Ireland tend to try to avoid this, but... allow me to indulge here for a minute and tell you how great I am. Well not so much me personally, but we, the advice community.

Let me back this up with a little evidence. Attached you will find two Canadian reports on the value of financial advice. We often cite the CARANO report, a robust econometric study which you may or may not enjoy leafing through of an evening; regardless this is one of the reports attached. If you’re not inclined to read further, perhaps let me give you just one figure and the reasons why (evidence based) financial advice works.

On average, how much better off are advised individuals?

Those who take advice on average end up with 173% of the terminal wealth of those who did not. This figure takes into account external factors such as starting wealth and education achievement.

Why do advised individuals out-perform?

1) Efficient structures - Advised individuals implement efficient structures. Optimal structuring leverages available tax efficiencies, controls cost and manages future risk.

2) Higher savings ratio – Advised individuals save more. Advice focuses thinking around matters such as optimising pension contributions analysing the long term impact of large discretionary purchases all of which will deeply effect how you save over time.

3) Behaviour – Advised individuals make less mistakes and hence avoid costly behaviour particularly where investment is concerned.

4) Understanding investment risk – Advised individuals have a better understanding of investment risk and hence tend to take more risk when and where this is appropriate and avoid it where it is not.