Measuring the Value of Advice

You may be familiar with recent studies that have attempted to quantify the value that financial advisors provide to people.

For example, a Vanguard study1 calculated the “Advisor Alpha” to be about 3% net of fees. In other words, someone working with a capable advisor, on average, earns a net return that is 3 per cent more than what the typical non-advised investor earns. Interestingly, fully half of that 3 per cent is attributed to behavioural coaching—helping clients ignore market noise and stress, and stick to their plans when emotions run high and they are tempted to react to daily headlines.

The intangibles—your feelings—matter too. The Financial Planning Standards Council quantified investors’ perceptions of the value of financial advice. FPSC found that 81% of people with a comprehensive financial plan felt on track with their financial affairs, compared to only 44% of people with no financial plan2.your financial goals is easier with a little help.”

IFIC recently published a well-designed, accessible two-page summary of key studies showing that financial advisors deliver significant benefits to people and to the economy. You can download the summary, called “Advice Creates Strong Value for Canadians.” Highlights include:

  • Among investors who work with an advisor, 92% say they’ve earned more because they have an advisor.
  • 94% of mutual fund investors trust their advisors to give them sound advice3.
  • Investors who work with advisors for 15 years or more accumulated 2.7 times more in savings than comparable investors without advice.

That last point is truly remarkable and is worth examining. It comes from a study conducted for IFIC and Advocis by Professor Claude Montmarquette and Nathalie Viennot-Briot of CIRANO Research, a well-respected scientific centre based in Montreal.

Their research paper, “Econometric Models on the Value of Advice of a Financial Advisor,” is based on data from more than 18,000 households, compiled by Ipsos Reid. Published in 2012, it’s the largest and most scientifically rigorous survey ever conducted in Canada on the topic of financial advice.

The large sample allowed the researchers to control for a wide range of variables including demographics, economic situations, education levels and attitudinal differences, as well as the duration of the advisory relationships. The results are conclusive: having a financial advisor contributes positively and significantly to the accumulation of financial wealth. Having advice, they said, tends to instill a greater savings discipline that positively impacts retirement readiness.

It’s fascinating to note that the research identified a general perception among Canadians that a person needs to have a certain level of assets in order to engage a financial advisor. Those who believe they lack that level of assets are less likely to seek financial advice. This misperception is clearly a major opportunity for advisors who are willing to begin working with individuals when they have modest assets, knowing that over the long term they can help those individuals greatly increase their wealth.

The clear take-away from all this great research is that your financial advisor is extremely valuable. As much as our information-rich society empowers people to learn and make their own decisions, financial planning is still an area where most people are wise to seek objective, expert advice and coaching from a qualified professional.

1 Vanguard. “Putting a value on your advice: Quantifying Vanguard Advisor’s Alpha.” (2014)
2 Financial Planning Standards Council. “The Value of Financial Planning.” (2015)
3 Pollara Research. “Canadian Investors’ Perceptions of Mutual Funds and the Mutual Fund Industry.” (2015)

The information contained herein is provided by OceanRock Investments Inc. (“OceanRock”) for general informational purposes only and is not intended to provide, and should not be relied upon as providing, legal, accounting, tax, financial, investment or other advice, or a solicitation to buy or sell any securities. Economic and market conditions are subject to change. The information was obtained from sources believed to be reliable, but is not guaranteed to be current, accurate or complete. OceanRock is not responsible for any errors or omissions contained herin. Meritas SRI Funds and OceanRock Mutual Funds are divisions of OceanRock, a wholly owned subsidiary of Qtrade Canada Inc.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Publication date: July 2016.


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