Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 317

Advisers must step up and articulate their value

Market experts have been warning investors to brace for the end of the longest bull run in history. This should be a time when many Australians are turning to financial advisers as they look to preserve their wealth and financial security. But the perception of the adviser value proposition is at record lows and many financial advisers are also struggling to remain positive at this time of need for their clients.

In recognising the impact an adviser can make to an investor’s overall financial well-being, Russell Investments has quantified the contribution professional advice can add to an investor’s portfolio over their lifetime. Our aim is to aid advisers with a repeatable and memorable framework to help them have open and frank conversations about their value proposition.

Our second annual Value of an Adviser Report estimates an investor gains a minimum of 4.4% p.a. through an advice partnership, which can make a massive difference to the financial security of the average Australian investor over their lifetime.

Building blocks that comprise an adviser’s real value

Here, we take a holistic look at the building blocks that comprise an adviser’s real value proposition throughout a client’s investing journey.

A is for Annual Rebalancing = variable % p.a.

Left to their own devices, individuals tend to let portfolios drift and, as a result, portfolios can look vastly different from their initial state over time. The potential result of an un-rebalanced portfolio is demonstrated in the chart below. A hypothetical balanced index portfolio that has not been rebalanced would look more like a growth portfolio and expose the investor to risks not initially agreed to.

Disciplined rebalancing is crucial to avoiding unnecessary risk exposure when investing. For example, if a certain asset class is performing strongly it can be tempting to hold an overweight position in that class. If the market corrects, investors may find themselves with too much invested in a volatile asset class.

Rebalancing is a key positive value add of advice, but we consider it variable as it depends on markets in the measurement period.

B is for Behavioural Mistakes = 1.9% p.a.

Despite strong evidence that portfolio value increases over time, investors can still feel compelled to react to short-term market volatility, serving to undermine their long-term objectives.

Advisers can play a critical role in helping clients adhere to their long-term financial plan and make better investment decisions by helping them skirt around some 200 identified behavioural tendencies that impact investing including Loss Aversion, Overconfidence, Familiarity and Herding.

If we just focus on herding, we look at the return if an investor bought and held an index. We then look at the flows into funds and ETFs through the market cycle. As markets rise, invariably, people put money in and buy high. As markets fall, investors lock that loss in by selling their funds and ETFs.

Our statistics show, the average fund investor’s inclination to chase past performance came at a cost of 1.9% p.a. from 1984-2018. This cost may well have been avoided with professional guidance.

C is for the Cost of Getting It Wrong = 1.6.% p.a.

There can be a clear disconnect between an investor’s risk profile and return expectations. In fact, research by Deloitte Access Economics found younger investors were more risk averse than their older counterparts. The research found around 81% of investors under 35 years old said they were seeking guaranteed or stable returns, compared to 41% of those aged over 55. On another note, 21% of the most risk-averse investors expected returns over 10%.

Looking below at average returns of Australian equity and bond portfolios over a 20-year period, an investor with 70% of their portfolio in growth assets and 30% in defensive would earn an average annual return of 10.9% over the 20-year period. Meanwhile, an investor with 30% growth assets and 70% defensive would achieve annualised returns of 9.3% over the same period.

In this scenario, an investor under 35 invested conservatively instead of in the growth option would have forgone an average of 1.6% return every year for 20 years. On $100,000 invested, that’s a significant difference of almost $200,000 to the final return.

Beyond investment-only advice

P is for Planning = variable % p.a.

Further to building and regularly updating bespoke financial plans and conducting regulatory reviews, financial advisers offer ancillary services including tax and estate planning, investment and cash flow analysis, retirement income planning and assistance with annual tax return preparation.

Like annual rebalancing, the quantification of this value add is variable as it depends on an adviser’s practice and services offered.

T is for Tax-smart investing = 0.9% – 1.2% p.a.

Lastly, quality financial advisers have the technical expertise to help clients make the most of their tax circumstances as well as avoid any unexpected surprises at tax time as regulatory changes occur.

We believe that the value of an adviser for tax-smart investing is at least the sum of tax effective investment strategies and salary sacrifice pre and post superannuation contributions (depending on account balances).

Therefore, we estimate the value of an adviser to range between 0.9%-1.2%p.a. depending on whether the client is in an accumulation or transition to retirement phase.

The bottom line

Russell Investments believes the importance of articulating the tangible benefits financial advice provides investors cannot be understated. From the knowledge and expertise required to help clients build personalised portfolios, to the support they provide when market conditions change, and the range of additional wealth management services they offer, such as tax and estate planning.

While we are empowering adviser conversation with clients, we are also providing investors with a framework of what financial advice looks like.

Looking forward, we believe advisers practicing a full value proposition will thrive in the current challenging environment.

 

Jodie Hampshire is Managing Director, Australia for Russell Investments. Based in Sydney, Jodie has overall responsibility for Russell Investment’s Australian business across Institutional and Advisor and Intermediaries Solutions. This article is general information and does not consider the circumstances of any individual.

 

7 Comments
Frank
August 04, 2019

Wow, 4.4% from financial advice when the long bond is 1.3% and markets are at elevated levels. I wish.

SMSF Trustee
August 04, 2019

Frank, you didn’t read the detail did you. Almost half of that is the author’s estimate of how much a good adviser will save someone who would otherwise make dumb mistakes, like panicking out of the market last December and watching it rally all through 2019. Or, to pick up on your point, to dissuade someone from throwing more money at the stock market now at ‘elevated levels’. So, the argument being made is that the typical client will miss tax opportunities and make mistakes that reduce their portfolio by at least 4.4% compared with what it could otherwise have been, so that the return on that 4.4% adviser fee is positive. It’s harder for advisers to make their value proposition to people who have a bit of an idea what they’re doing and a bit of self-discipline. (I believe I’m in that category, and so did my adviser when we started out on our SMSF journey. I take it you think you’re also more sophisticated.) In those cases the good advisers pitch a sensible fixed dollar fee to cover the agreed scope of works. In my case, that started at the equivalent of about 0.15% and reduced from there as my fund grew over the last few years.

Carikku de Roo
August 12, 2019

Agree 100% about good advisers charging a fixed dollar fee, which diminishes as a percent of your funds as they grow This is an often-overlooked advantage of independent advisers – most people think that independence just means not affiliated with product manufacturers but actually it is the lack of asset-based fees that usually impact portfolios the most in the long term.

Stephen
August 01, 2019

This is a fantastic article, I often have difficulty articulating the value of my advice, it’s just not a strength of mine. I will definitely be sending this article to my clients.

Tony Smith
August 01, 2019

the 4+% increase by using an adviser is nothing compared to the risk of losing a LOT from bad financial advice.

Steven
August 04, 2019

Yeah, because no one ever lost “a LOT” from getting no advice.

Michael2
September 29, 2019

People like Bernie Maddox don't help the situation, he even stole payouts from injuries and old people's life savings

 

Leave a Comment:

RELATED ARTICLES

The value of financial advice amid rise of retail investors

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Latest Updates

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Economy

Australia's economic report card heading into the polls

Our economy grew by a nominal rate of 7% per annum from 2017 to 2024, but it benefited from the largesse of fiscal and monetary policies, both of which are now fading. We need a new, credible economic growth agenda.

Preference votes matter

If the recent polls are anything to go by, we are headed for a hung parliament at the upcoming federal election. So more than ever, Australians need to give serious consideration to their preference votes.

SMSF strategies

Meg on SMSFs: Tips for the last member standing

It’s common for people as they age to seek more help in running their SMSF if their capacity declines. An alternate director may be a great solution for someone just planning for short-term help in the meantime.

Wilson Asset Management on markets and its new income fund

In this interview, Matthew Haupt from Wilson Asset Management discusses his outloook for the ASX, sectors such as REITs that he likes, and his firm's launch of a new income-oriented listed investment company.  

Planning

‘Life expectancy’ – and why I don’t like the expression

Life expectancy isn't just a number - it's a concept that changes with survival rates over time. This article breaks down how age, survival, and societal factors shape our understanding of life expectancy, especially post-Covid. 

The shine is back on gold, and gold miners

Gold mining stocks outperformed in 2024 and are expected to do well in 2025. At this point in the rally, it's worth considering what has driven gold prices higher and why miners could still have some catching up to do.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.