There are many areas in which financial advisers add value to their clients.
We have broken them down into three ‘branches’, with several individual elements in each branch. In this blog we look at the Money branch.
The Money branch looks at areas such as portfolio management, investment philosophy and risk management. We have outlined a little more detail about some of the elements below.
- Sequence of return risk mitigation – there is a pernicious risk that few investors are aware of called “sequence of return risk”. It can have a massive impact on how long a fund will last, while income is being taken – in some cases it could reduce clients’ income by nine years or more. Advisers can help plan and take the simple but effective steps to mitigate that risk – and give clients the expectation of “longer lasting retirement income”.
- Investment due diligence – advisers conduct rigorous due diligence on clients’ investments. They research the funds, products, and platforms that they recommend. With many thousands of investment instruments in the UK they save clients time while giving peace of mind. For example, few investors are aware of a feature called pre-funding. Advisers can select the most efficient platforms to hold client investments to make sure that tax refunds and time delays are minimised. This could save clients many £s over the years.
- Portfolio management and rebalancing -Advisers use sophisticated modelling tools to try to maximise return for a given level of risk / risk tolerance. Advisers are seeking better potential performance without the downside. They can also keep client portfolios up to date. A portfolio today is very different to one ten years ago and ten years before that – advisers keep up to date with developments and lower cost solutions.
- Investment and platform cost savings – Reducing costs and boosting efficiency can compound up to big differences over the years. Advisers have access to portfolios that cost from 0.4% per year versus the average managed fund of 1.37% per year (source: Money Management). Wrap platforms can add real value and make portfolio management easier – advisers can make sure they select one that meets client needs. They make sure the platform is cost effective and reliable – making clients’ lives easier.
- Diversification – “don’t put all your eggs in one basket”. A well-diversified portfolio can be expected to deliver the required returns with a lower amount of risk. Advisers can use sophisticated tools to help achieve portfolios with the expected returns clients seek within a given risk tolerance.
- Tax efficiency – Advisers can ensure that clients use all applicable tax reliefs and allowances each year – thus helping clients’ money grow faster. Estimates suggest that this could boost returns by 1% per year (based on 20% tax relief on long term equity returns of 5% pa¹) – so on a £100,000 investment that would be £1,000 per year.
- Risk assessment – risk is a complex subject with many dimensions. Advisers will help clients to navigate and understand risk to ensure the solutions recommended meet their needs. Advisers use their expertise, structured questions, and a conversation to guide clients to a solution that meets their needs and objectives in a way they understand.
There are two more branches where advisers add value, together they make up the Value of Advice Tree (below). Future blogs will look at these areas in more detail.
If you are an independent financial adviser and would like more details please email us: firstname.lastname@example.org
¹Barclays Equity Gilt Study 2020. UK Equities delivered 5.0%pa real returns over 120 years.
Visit the Literature & Insights section of our Adviser Centre to download ‘The Value of Advice‘ word document that can be used with clients or in blogs / newsletters (to be issued / approved by the IFA firm).