What’s the Value of Financial Advice? About £40,000 According to New Research

​​​New research has added further weight to the growing evidence that taking professional financial advice leaves people significantly better off over the long-term. The research by the International Longevity Centre – UK (ILC-UK), supported by Royal London shows that those who take financial advice are an average of £40,000 better off.

People employing financial advisers tended to save more and are more likely to make investments in the stock market, which has helped their wealth grow over time.

This new research report finds that those who received financial advice in the 2001-2007 period had accumulated significantly more liquid financial assets and pension wealth than their unadvised equivalent peers by 2012-14.

The report examines the impact of financial advice on two groups, the ‘affluent’ and the ‘just getting by’. The ‘affluent’ group is formed of a wealthier subset of people who are also more likely to have degrees, be part of a couple, and be homeowners. The ‘just getting by’ group is formed of a less wealthy subset who are more likely to have lower levels of educational attainment, be single, divorced or widowed and be renting.

Key findings of the research

• The ‘affluent but advised’ accumulated on average £12,363 (or 17%) more in liquid financial assets than the affluent and non-advised group, and £30,882 (or 16%) more in pension wealth (total £43,245).
• The ‘just getting by but advised’ accumulated on average £14,036 (or 39%) more in liquid financial assets than the just getting by but non-advised group, and £25,859 (or 21%) more in pension wealth (total £39,895).

The report also finds that financial advice led to greater levels of saving and investment in the equity market:

• The ‘affluent but advised’ group were 6.7% more likely to save and 9.7% more likely to invest in the equity market than the equivalent non-advised group.
• The ‘just getting by but advised’ group were 9.7% more likely to save and 10.8% more likely to invest in the equity market than the equivalent non-advised group.

Those who had received advice in the 2001-2007 period also had more pension income than their peers by 2012-14:

• The ‘affluent but advised’ group earn £880 (or 16%) more per year than the equivalent non-advised group
• The ‘just getting by but advised’ group earn £713 (or 19%) more per year than the equivalent non-advised group

The report found that 9 in 10 people are satisfied with the advice received, with the clear majority deciding to go with their adviser’s recommendation.

Many people still don’t take financial advice

Despite the advantages of receiving advice, only 16.8% of people saw an adviser in the years 2012-2014. Indeed, ‘The Value of Financial Advice’ finds that even amongst those who took out an investment product in the last few years, around 40% didn’t take advice, rising to 78% of people who took out a personal pension.

After controlling for a range of factors, ‘The Value of Financial Advice’ concludes that the two most powerful driving forces of whether people sought advice was whether the individual trusts an Independent Financial Adviser to provide advice, and the individual’s level of financial capability.

What does it all mean?

Ben Franklin, Head of Economics of Ageing, ILC-UK said: “Our results show that those who take advice are likely to accumulate more financial and pension wealth, supported by increased saving and investing in equity assets, while those in retirement are likely to have more income, particularly at older ages. But the advice market is not working for everyone. A high proportion of people who take out investments and pensions do not use financial advice, while only a minority of the population has seen a financial adviser. Since advice has clear benefits for customers, it is a shame that more people do not use it. The clear challenge facing the industry, regulator and government is therefore to get more people through the “front door” in the first place.”

Sir Steve Webb, Director of Policy, Royal London said: “This powerful research shows for the first time the very real return to obtaining expert financial advice. What is most striking is that the proportionate impact is largest for those on more modest incomes. Financial advice need not be the preserve of the better off but can make a real difference to the quality of life in retirement of people on lower incomes as well. The evidence shows that when people take advice they are overwhelmingly satisfied and benefit as a result. More needs therefore to be done to overcome the barriers to advice.”

Wrapping up

This research is further evidence of the value of financial advice. A quality independent financial adviser can save you tax, get you better investment returns and save you from costly financial mistakes. An ongoing relationship with a financial expert is the best way to secure a more prosperous future and realise your dreams and ambitions.

For most people, the cost of employing a financial adviser is dwarfed by the benefits.

If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.