Wednesday January 16 2019

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Village Features

Report reveals the real value of advice

Posted on November 27 2017 at 11:16:18


You could save more money with the right guidance, writes Martin Pryor, of Pryor Portfolio.

An interesting report was produced recently by the International Longevity centre (ILC) into the “real value of financial advice”.

A robust statistical method was used to control a range of factors likely to determine demand for advice – including income, wealth and behavioural traits.

The results show that those who take advice are likely to accumulate more financial and pension wealth, supported by increased saving and investing in equity assets, while those in retirement are likely to have more income, particularly at older ages.

Financial planning is complex. Broadly defined as making decisions about money to help individuals meet certain goals and aspirations over their lifetime, planning is a continuing process of anticipating and adapting to changes in personal circumstances over the long term.

The human mind, however, is not programmed to think long-term, preferring rewards today over larger rewards tomorrow, and switching off in the face of complexity.

Given that our lives are so full of other activities, we are likely to need help with financial planning from those who are qualified to give it. Unfortunately, many do not seek financial advice – only 16.8% of people saw an adviser in the years 2012 to 2014.

In this context, this report brings new empirical evidence to bear on the value of expert financial advice.

The investigation quantifies the impact of advice on asset accumulation and retirement planning, and provides case studies to illustrate the roles of advisers in supporting their clients’ financial planning needs.

To address this challenge, the report uses an advanced statistical technique called “propensity score matching”, which identifies two similar groups of individuals within the data and then assesses the impact of advice on one group (the treatment group) versus the other (the control group), thereby mimicking a scientific experiment.

Using this technique, the analysis explores the impact of receiving advice during the period 2001 to 2007 on consumer outcomes in 2012 to 2014.

As well as exploring the overall impact of advice, the analysis also focuses on two specific consumer groups – the “Affluent” group (wealthier subset of the population) and the “Just Getting By” group (less wealthy subset).

Headline findings
The results strongly demonstrate the positive value of financial advice for consumers – both amongst those who are wealthy and those who are less wealthy:

* Those who took advice were significantly more likely to save more as well as to invest in the equity market.

* The “affluent but advised” group was 6.7% more likely to save and 9.7% more likely to invest in the equity market than the equivalent non-advised group.

* The “just getting by” group was 9.7% more likely to save and 10.8% more likely to invest in the equity market than the equivalent non-advised group.

Subsequently they ended up with more financial assets (£13,435) and pension wealth (£27,664) by 2012–14 than similar individuals who did not take advice.

* The “affluent but advised” group accumulated on average £12,363 (or 17%) more in liquid financial assets than the equivalent non-advised group, and £30,882 (or 16%) more in pension wealth.

* The “just getting by” but advised group accumulated on average £14,036 (or 39%) more in liquid financial assets than the equivalent non-advised group, and £25,859 (or 21%) more in pension wealth.

* Those who had received advice in the 2001–2007 period also had more pension income (+£773) than a similar group who did not.

This was the case at all ages but particularly for the oldest group (+£1,100 for people aged 65-79 and +£1,300 for those aged 80 and over).

* The “affluent but advised” group earn £880 (or 16%) more per year than the equivalent non-advised group.

* The “just getting by” group earn £713 (or 19%) more per year than the equivalent non-advised group.

These results strongly indicate that advice works, adding real value to consumers’ financial circumstances over the long run.

Evidence from this report also reveals that the experience of taking advice is highly satisfactory: 9 in 10 people are satisfied with the advice received, with the vast majority deciding to go with their adviser’s recommendation.

Since advice has clear benefits for customers, it is a shame that more people do not use it!

Read the full report at or contact PPM and we would be delighted to email you a copy.

Contact Pryor Portfolio for more information and advice.
Tel: 07961 162818
.(JavaScript must be enabled to view this email address)

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