Research shows that an advisor can add between 1.5-3% to an investor’s returns over time.
In a world where information is readily available on pretty much everything many investors are confident that with a careful reading of financial news and time dedicated to Google searches, they can manage their money and investment themselves.
Some reckon that in the current uncertain and volatile markets they have as much of a chance for success as an advisor. This, however, is far from the truth. For most investors, there is a definite benefit in having a financial advisor.
Research, testing and various analysis done by one of the world’s biggest investment advisory firms, Vanguard, shows that there is a quantifiable increase in the returns for investors with financial advisors. That research, as well as research by other investment firms across the world, shows that an advisor can add between 1.5-3% to an investor’s returns over time.
Agreed not everyone needs an advisor or necessarily want one. About a quarter of all private investors are dedicated enough to manage their own affairs. They study the market movements obsessively; do projections and they enjoy doing it. What differentiates them is the fact that they have the discipline, and they remain focused on their long-term investment goal and strategy. They do not let their emotions determine their investment decisions, especially in difficult times.
There are pros and cons to having a financial advisor, vs making use of Robo advice or going full DIY. These must be weighed up in each individual scenario.
This is what an experienced advisor will deliver:
- Required risk management: Many investors doing it themselves tend to be overly conservative or risky when it comes to their investments. With proper analysis and discussion of the individual’s personal circumstances and financial goals, the required risk level best suited to their needs and long-term plans can be established. Sometimes the risk levels need to be increased to achieve a better long-term investment outcome.
- Behavioural coaching: A good advisor is focused on educating investors and “holding their hands” in tough times. This coaching is especially important in order to prevent them from making drastic changes when the markets are volatile. Emotions must be managed, and advisors can help with this.
- Selecting asset managers and funds: Individual investors rarely have direct contact or accessibility to individual fund managers. Advisors engage with fund managers regularly and establish close working relationships with them. Therefore, an advisor can ensure that the fund managers that the investor’s monies are entrusted to are reputable, experienced with a solid track record and have differentiated themselves as excellent through good and bad times.
- Financial planning and financial risk management: Financial advisors have the knowledge to assist investors with detailed calculations when it comes to important components of a financial plan, for instance, retirement planning or estate planning. They also assist in managing financial risks that tend to derail these plans and how to adjust to ensure minimal disruption.
A research report about consumer financial behaviour completed by Herbers & Company in December last year found that people who hire a financial advisor were statistically happier than those who don’t – by a wide margin. This held true even when controlling for gender, age, income and asset levels. In conclusion, it is true: money can buy happiness – if managed correctly. With a financial advisor, you have a better chance of achieving exactly that.