A recent survey undertaken by Vanguard has revealed that human-delivered advice has a significant impact on clients’ peace of mind, particularly during times of economic uncertainty.
The survey, which involved more than 1,500 advised investors in the United States, found that human advisers increased the financial peace of mind of investors by 56 percentage points.
According to Vanguard’s observations, advisers were able to deliver significant emotional value including behavioural coaching, confidence, and a sense of accomplishment.
“Traditional economics assumes people are rational but in reality, behavioural biases exist, and we tend to have less self-control than we believe — so that’s where financial advisers can step in and help,” explained Vanguard’s senior behavioural economist, Paulo Costa.
“Advisers can harness the human element of financial advice and provide the emotional value clients most appreciate — coaching them through macroeconomic changes such as rising interest rates, keeping them on track to meet their investment goals, and being a trusted consultant.”
According to the firm, the value of advice will especially come to the fore as the unusual low-rate environment that has been seen during the last decade comes to an end.
Vanguard global chief economist Joe Davis argued that setting real interest rates above the rate of inflation is key to ensuring fiscal discipline and keeping the economy on sound footing.
“We know many Australians are feeling the pinch of interest rate rises on their cost of living and ability to service mortgages, but longer term for investors this higher rate era we are moving into isn’t ‘new’, it’s actually a return to a more normal environment, and shouldn’t necessarily be viewed as a negative,” he stated.
“The last few years of near-zero rates were in part to accommodate exceptional events such as COVID-19, and while effective at the time, they’re unsustainable in the long-run.”
Mr Davis suggested that an era in which short-term interest rates are above trend inflation on average and provide positive real returns is now beginning.
“While rising rates might mean the end of ‘easy’ money for some, the return to ‘sound money’ is a clear positive for the global economy and for long-term investors,” he said.
“Real positive interest rates not only provide a solid foundation for returns on all asset classes, but also lead to higher economic growth, higher returns for savers, forces fiscal trade-offs and ensures production efficiencies — they are the firewall protecting us from future inflationary pressures.”
