Is Financial Advice Worth It?

According to ONS data from 2020, only 41% of Brits don’t have enough savings to live for a month without income.

So if you have built up some savings, pension pots or investments, you are by virtue of that achievement, above average intelligence and discipline.

You know it hasn’t been easy to keep spending down and earning more to achieve these savings, so you don’t want to make a mistake in terms of how you manage the pension and investments.

There is a web full of DIY “advice” and so it is not unreasonable that you wonder, “is advice worth it?”

For advice to be worthwhile it needs to deliver you a better outcome that you can achieve on your own.

According to our research among independent financial advisors, that result will likely come in up to five ways:

1. Lower costs
2. Maximising tax benefits
3. Better long term portfolio performance
4. Bigger picture planning
5. Avoiding a big mistake

Lower costs

While you pay an advice fee, a good advisor will keep your fund provider, platform and transaction costs low.

As one leading adviser commented, “I see lots of customers on “cheap” DIY platforms trading their investments too often, moving in and out of expensive funds. This tinkering, and poor fund selection compounds their costs over time and is a major drain on their investment performance.”

Maximising tax benefits

Using full tax allowances, including ISAs, and pension tax relief is a major area of advice that almost all IFAs cited.

It is common that married couples only use half their allowances, often because one partner earns more, and they cannot see how to restructure their finances to take advantage of the opportunities.

This is hampering their long term investment and pension income, but there are lots of things an advisor can do to combat this.

Better long term portfolio performance

A well-designed portfolio will get the best out of the market, and as a result out perform nearly 80% of the market.

According to a new report by The Standard and Poors Indices Versus Active Scorecard, which tracks the performance of actively managed funds against their respective category benchmarks, 79% of fund managers underperformed the S&P market index in 2021.

A good independent advisor will put your money in the funds that maximise your market returns.

They will also balance your shares to bonds ratio to protect you against downturns in the market, match you risk profile, and stage of life.

Bigger picture planning

An accurate cash flow forecast, that looks at your spending and your goals, and forecasts realistic investment gains and inflation can make it easier to see how much to save, how long to work, and that ultimately you are going to be financially sound.

It’s amazing how many people comment to an IFA after such an exercise that they are relieved that they don’t need as much as they thought, or are pleased to see that with small changes they can get on track.

Avoiding a big mistake

There are so many ways to invest, that it is easy for the DIY investor to make a big mistake.

This doesn’t just mean avoiding bad and risky investments like bonds in unusual investments such as whisky or storage or new buy to let developments.

It can be just as important to avoid the overly safe and expensive investments offered by major insurers and mutuals, as these products can result in you missing an achievable saving and investment goal.

Summary

This publication’s research shows that good advice will help you in five ways, that commonly adds up to 2-5% more in compound gains on your pensions and investment every year, maximising your opportunity and preventing big and costly mistakes.

If you have £50,000 to invest and can save £15,000 a year, over 15 years this is worth up to £300,000 in extra gains, compared to not taking advice.