The value of advice

Catherine Robberts - Business Development Manager: Key Accounts

With the evolution of financial markets and the proliferation of funds and products over the recent past, making investment decisions can feel overwhelming. While most of us recognise the importance of investing for our future, it can feel like an impossible task given the variety of choices now available. Where does one start?

For me, when I become challenged by indecision, it can help to seek the advice of a professional. Much like seeking the input of a healthcare professional when you are ill and unsure of the diagnosis or treatment, engaging with the right financial advisor can help ensure your financial wellness.

There have been many industry studies which indicate that seeking advice and working with a financial advisor can improve an investor’s propensity for success. Not only do advisors take the time to understand your financial needs, but they are also capable of formulating a workable plan to achieve these and cater for the monitoring and evaluation of your progress along the journey. The path to financial freedom is, after all, a marathon and not a sprint.

With the increased complexity of the investment environment, the measure of value a financial advisor can deliver has also changed over the decades. There was a time when it was simply about the ability to outperform a benchmark, but it has become far more nuanced and there can be gaps between how the different parties in the relationship (client and advisor) perceive this value.

Source: Morningstar: The Value of Advice

Vanguard embarked on a similar study, titled “Vanguard’s Advisor Alpha”, which measured the impact sound advice principles can have on investors achieving their intended investment outcomes. Asset allocation, cost-effective implementation, rebalancing, behavioural coaching, spending strategy, and total-return investing versus income investing all have a part to play in overall success.

Most interesting is that research shows, time and again, that behavioural coaching can have the biggest impact on investment outcomes. We can be our own worst enemies on the journey to success by falling prey to several unconscious biases that thwart our best intentions. Money is an emotional concept, so it is unsurprising that we often act on emotion when it comes to investment and money decisions.

Nedgroup Investments in partnership with Oxford Risk also delved further into this concept. What our research shows is that by looking beyond demographics and understanding the psychological variables for individual investors, advisors can, and do, play a meaningful role in designing and navigating investment journeys that give investors the best chance of achieving their goals.

So, what does this mean for the future of advice?

Our research highlights three focus areas outside of traditional technical ability:

Personalisation and partnership: The ability to personalise support based on an individual investor’s personal relationship with investing and understanding how they emotionally interact with it.

Understand and remove personal biases: An advisor who understands their own biases, as well as those of their clients, shapes how they engage with them and informs the investment plan and support structures implemented along the journey.

Full spectrum client support: Each investor is unique and requires individualised engagement to maximise their propensity for success. Knowing how to communicate and share information throughout their journey, in a way they can digest it, is pivotal in mitigating the investor behaviour penalty.

Source: Nedgroup Investments Investor Personality and Behavioural Report 2021

In conclusion, as the industry has evolved, so have the needs of investors. Partnering with a skilled financial advisor who can master the art of financial coaching has been proven to significantly improve outcomes for clients.