Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 222

What do investors value in financial advice?

Challenged on one front by robots and on the other by a general reluctance among the wider public to pay for advice, some financial planners have been experiencing an existential crisis in recent years.

One obvious response among advice firms has been to fight the technology-led commodification of advice by going for scale, cutting costs and industrialising processes as much as feasible. A second response has been for advisers to stop and ask themselves exactly what it is that investors (or at least those willing to pay for financial advice) feel they value most from the human side of the service. A third response, and one pursued in a new global survey, is to ask investors themselves what they value.

The survey of almost 19,000 investors (clients of 436 participating firms in eight countries) by Dimensional Fund Advisers offers insights for firms reflecting on what they can offer and charge for beyond what’s available in an app.

Investment returns rank below security and peace of mind

The most notable outcome of the survey, which covered Australia, New Zealand, the US, Canada, the UK and Europe, was that investment returns rank well below other more qualitative factors for end investors. Asked how they primarily measure the value they receive from their adviser, investors’ most cited benefit was a sense of security and peace of mind, which was the top value among 35% of respondents. Second on the list was the adviser’s knowledge of their personal financial situation (23%), followed by a sense of making progress toward their goals (20%). Investment returns came in fourth among the key benefits at 14%. While all this might seem predictable at first glance, it’s arguable whether many financial planning firms really position themselves primarily in that light, as wealth counsellors and behavioural mentors.

While advisors may be tempted to promote their value as ‘generating good returns’, the real value they offer is getting clients to where they want to go. Returns are part of that, of course, but the advisor’s main value-add is keeping clients focused on the areas within their control. Promising ‘good returns’ only means having to explain when markets don’t deliver.

For instance, a financial plan that involves taking big risks in volatile assets whose ups and downs are more than the client can comfortably live with is probably not going to be a successful plan in delivering on the goal. In contrast, a plan that works within the clients’ risk preferences that allows them to sleep at night and that is built according to their own lifestyle and circumstances may be more successful, even if short-term returns are less eye-catching.

In other words, the destination is more achievable if the journey is tolerable. And that’s the value proposition for advisers that surfaced in this survey.

What can be controlled?

According to Dimensional’s co-CEO and Head of Global Financial Adviser Services, Dave Butler, the value that investors place on a sense of security is really an outcome of advisers setting the right expectations with each client. “By helping clients understand what they can and cannot control, advisers can create a different experience to help ease their concerns,” Butler says. The importance of the day-to-day experience also came through in answers to the question about what attribute investors consider most important in the adviser relationship. Of the survey sample, 31% cited the client service experience, while 26% said they ranked the adviser’s experience with clients like themselves.

With Australia’s superannuation system moving away from a lump sum to a retirement income goal, the survey’s findings were revealing. Asked to identify the most valuable retirement planning information they receive, 28% of respondents cited knowing how much they will be able to afford to spend each year, ranking ahead of the total amount they will have for retirement (22%). Correspondingly, the single most cited fear about personal finances was not having enough to live on comfortably in retirement (37%), followed by experiencing a significant loss in a market downturn (31%).

 

Jim Parker is Regional Director, Communications, for Dimensional Fund Advisors in Sydney. Dimensional has 12 offices in eight countries and global assets under management of AUD675 billion as at 30 June 2017.

RELATED ARTICLES

Work still needed to close the financial gender gap

The link between financial and mental health

The reforms that our retirement system needs

banner

Most viewed in recent weeks

Vale Graham Hand

It’s with heavy hearts that we announce Firstlinks’ co-founder and former Managing Editor, Graham Hand, has died aged 66. Graham was a legendary figure in the finance industry and here are three tributes to him.

Australian stocks will crush housing over the next decade, one year on

Last year, I wrote an article suggesting returns from ASX stocks would trample those from housing over the next decade. One year later, this is an update on how that forecast is going and what's changed since.

Avoiding wealth transfer pitfalls

Australia is in the early throes of an intergenerational wealth transfer worth an estimated $3.5 trillion. Here's a case study highlighting some of the challenges with transferring wealth between generations.

Taxpayers betrayed by Future Fund debacle

The Future Fund's original purpose was to meet the unfunded liabilities of Commonwealth defined benefit schemes. These liabilities have ballooned to an estimated $290 billion and taxpayers continue to be treated like fools.

Australia’s shameful super gap

ASFA provides a key guide for how much you will need to live on in retirement. Unfortunately it has many deficiencies, and the averages don't tell the full story of the growing gender superannuation gap.

Looking beyond banks for dividend income

The Big Four banks have had an extraordinary run and it’s left income investors with a conundrum: to stick with them even though they now offer relatively low dividend yields and limited growth prospects or to look elsewhere.

Latest Updates

Investment strategies

9 lessons from 2024

Key lessons include expensive stocks can always get more expensive, Bitcoin is our tulip mania, follow the smart money, the young are coming with pitchforks on housing, and the importance of staying invested.

Investment strategies

Time to announce the X-factor for 2024

What is the X-factor - the largely unexpected influence that wasn’t thought about when the year began but came from left field to have powerful effects on investment returns - for 2024? It's time to select the winner.

Shares

Australian shares struggle as 2020s reach halfway point

It’s halfway through the 2020s decade and time to get a scorecheck on the Australian stock market. The picture isn't pretty as Aussie shares are having a below-average decade so far, though history shows that all is not lost.

Shares

Is FOMO overruling investment basics?

Four years ago, we introduced our 'bubbles' chart to show how the market had become concentrated in one type of stock and one view of the future. This looks at what, if anything, has changed, and what it means for investors.

Shares

Is Medibank Private a bargain?

Regulatory tensions have weighed on Medibank's share price though it's unlikely that the government will step in and prop up private hospitals. This creates an opportunity to invest in Australia’s largest health insurer.

Shares

Negative correlations, positive allocations

A nascent theme today is that the inverse correlation between bonds and stocks has returned as inflation and economic growth moderate. This broadens the potential for risk-adjusted returns in multi-asset portfolios.

Retirement

The secret to a good retirement

An Australian anthropologist studying Japanese seniors has come to a counter-intuitive conclusion to what makes for a great retirement: she suggests the seeds may be found in how we approach our working years.

Sponsors

Alliances

© 2024 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.