Advised investors 5.9% better off in 2023

Despite tough conditions and rising inflation, the latest edition of Russell Investments’ Value of an Advisor report has found that the potential value delivered by financial advisers to their clients’ investment portfolios has increased year-on-year to 5.9 per cent in 2023, up from 5.8 per cent in 2022.

Russell Investments’ managing director and head of distribution in Australia, Neil Rogan, said: “For the past two years, advisers have increased their value to clients, proving yet again why they are the trusted expert in the room that Australians desire when there’s uncertainty in domestic and global investment markets.”

The areas that Russell Investments evaluates to calculate the value of an adviser include behavioural coaching, appropriate asset allocation, tax savvy planning and investing, choices and trade-offs, as well as the value of an adviser’s years of professional expertise, which the firm said was “priceless”.

“Too often, non-advised investors make rash decisions and change investment strategies when there needs to be greater consideration for the longer term,” Mr Rogan said.

“This is where advisers become just as much a behaviour coach as a financial coach. In 2023, behavioural coaching alone could contribute 3.4 per cent to the value of investors’ portfolios.”

Asset allocation was valued at 1.2 per cent in 2023, with Russell Investments noting that this portion is responsible for more than 85 per cent of an individual’s investment outcome.

“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 per cent in value from an adviser achieved through carefully considered asset allocation can make a big difference to an investor’s outcome.”

Clients also receive 1.3 per cent in value on the back of their adviser’s tax savvy planning and investing skills, which Russell Investments said was “crucial to ensure clients’ portfolios don’t unnecessarily leak funds”.

“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.

However, the firm added there are areas of what an adviser provides that are not quantifiable, with retirement planning, life insurance, and social security among these skills.

“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,” Mr Rogan said.

“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.”