Neil Rogan

The quantifiable value of a financial adviser’s contribution to their client’s portfolio has risen to 5.8% in 2022, as investors face prolonged market volatility.

Released yesterday, Russell Investments’ fifth annual Value of an Adviser Report demonstrates the important role financial advice plays for clients in 2022, as a range of factors – supply chain issues, inflation, rising interest rates and geopolitical conflicts – pressure many investors into sub-optimal investment decisions.

Neil Rogan, Russell Investments Head of Adviser & Intermediary Solutions in Australia, said:“Advisers continue to remain extremely valuable to their clients in 2022. The past two years have been challenging for investors, with many facing these prolonged levels of volatility for the first time in their investing lives. As a result, many investors have turned away from investment markets, seeking shelter in assets like cash which they believe to be safer.

In their role as a behavioural coach, advisers have helped their clients remain invested through the turbulence, preparing them for an uncertain future and working with them to determine their post pandemic goals. This year, that aspect of an adviser’s role alone is responsible for 2.9% of portfolio value.”

The value of an adviser calculation is drawn from five key elements: behavioural coaching (2.9%); appropriate asset allocation (1.6%); tax savvy planning and investing (1.3%); choices and trade-offs (variable); and the value of an adviser’s years of professional expertise (priceless).

In 2022, advisers increased the performance of their clients’ portfolios by 1.6% solely by ensuring an appropriate asset allocation across their investments.

Research^[1] suggests asset allocation is responsible for more than 85% of an individual’s investment outcome. However, this critical step of an advice process is often undervalued and underappreciated.

More than 60% of superannuation savings in Australia’s $1.2 trillion pool of MySuper assets are managed to a single strategy asset allocation^[2]. For a member in a single strategy default, this means adopting the same investment strategy as other members of their fund cohort, despite being of a different age or having a different super balance or retirement goal. As a result, many non-advised Australians suffer sub-optimal investment returns, and may conversely expose their portfolio to unnecessary levels of risk.

“We believe that being in an asset allocation that is appropriate to an individual’s personal needs, as identified by their adviser, can be worth up to 1.6% p.a. in annual portfolio value, particularly in periods of market instability such as those investors are currently experiencing,” Mr. Rogan said.

The remaining 1.3% of quantifiable adviser value is drawn from tax savvy planning and investing. While commonly considered the responsibility of accountants, tax considerations are an important part of the advice process – 23% of investors consider tax effectiveness as one of their top three investment concerns^[3].

“Providing a more tax-effective approach to investing is an area where advisers can distinguish themselves and demonstrate some of the more specific advice strategies that can deliver real value to their clients,” Mr. Rogan said.

“The technical expertise required to minimise a tax position through super is confusing and daunting for clients, but for financial advisers, it’s a consideration they make every day to optimise their clients’ outcomes.”

The Report shows that an adviser’s contribution to the success of their client’s wealth building journey is more than what can be quantified. Just over 55% of Australians are considered financially literate^[4], but 83% of advised Australians report feeling peace of mind about their future^[5].

“The value of an adviser isn’t limited to their positive portfolio impact. Advisers are experts at simultaneously incorporating their emotional expertise into their technical capabilities, to help clients overcome periods of immense personal and family challenges such as trauma, illness, and death,” Mr. Rogan said.

“These tangible, but non-quantifiable, qualities also extend to how advisers help their clients synthesise the myriad combination of personal goals, circumstances, preferences and considerations into a cohesive plan to provide their clients with financial certainty.”

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[1] Russell Investments Making Super Personal White Paper 2020
[2] Australian Prudential Regulation Authority (APRA) 2021
[3] ASX Australian Investor Study 2020
[4] Financial Literacy in Australia: Insights from HILDA Data, March 2020
[5] ASIC What consumers really think 2019

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