Is it worth using an IFA or can you just “do it yourself”? – Part 1

Posted on Oct 30, 2018

The underestimated value of seeking financial advice

As Independent Financial Advisors (IFAs), we know that the value of seeking financial advice when it comes to your financial decisions is still under estimated.  We also know that seeking professional advice is actually more important now than ever before: retirement planning, legislative changes and market uncertainty continue to make personal finances more and more complex.

Research by Aviva in 2012 revealed that only 21% of those who took part in their survey, would seek advice from a financial advisor and yet, 81% said they had regretted a financial decision they had made. But 95% of those who had taken professional advice said they had benefited as a result! There’s clearly a disconnect somewhere.

This is something we’ve talked about before, but with such a gap between the take up of advice and levels of satisfaction with the services IFAs provide, we think the following three questions merit a revisit:

Do you need professional financial advice?

Pension planning

Retirement planning is more challenging than it’s ever been. Gone are the days of Defined Benefit Pension and in its place stands the Defined Contribution scheme. The effect of this is that as individuals you now have to choose how much you want or need to contribute every month, in order to give you the retirement income that you’re going to want or need in the future – possible 10, 20 or even 40 years in the future!

Then there’s the pension freedoms, which allows you to choose your decumulation strategy, including cashing in the entire pot, entering an income drawdown arrangement or buying an annuity. And you’ve got to make these decisions, whilst of course ensuring that you don’t run out of money before you die and with increasing life expectancy, you’ve got to know when that is likely to be!

Political and economic uncertainty

It cannot be denied that we’re going through a dramatic period of change. With the economic crash of a decade ago, came a change in attitude. Some would say the direct result is the Trump administration, Brexit and massive European (and global) upheaval. Whatever your views on any of these, the fact remains that they have and will continue to have a knock-on effect on the economy in ways it is going to continue to be difficult to predict. Frankly, at times the financial landscape has seemed scary when in fact it’s been benign, and vice versa. Good luck to the armchair economist who’s playing that game!

The taxing demands of changing taxation

Austerity limps on. And changes to the tax regime seem to be a never-ending source of inspiration to those in charge of the national Budget! You need to be at the top of your game when it comes to knowing the very latest changes to the tax regime (and the implications of those changes for your financial future).

All of this come on top of the fact, that lifestyles have changed and options have increased tenfold. There’s an increasing number of entrepreneurs with more complex or unusual financial set ups, there’s a whole generation of baby boomers setting up business for the first time, investing in philanthropic endeavours, wanting to travel, staying in the family home or looking for exit strategies. Meanwhile, the World Wide Web in all its splendour means we’re given a small (but tempting) amount of information about a whole host of financial products that promise the magic solution we’re after!

And whilst there’s not necessarily anything wrong with most of the above, what it does mean is that navigating your finances through this changing world to ensure you have the retirement you want, is an emotive, complicated and daunting journey even for the very financially savvy. So yes, without a shadow of a doubt and for all the above reasons and more, we think it’s more important than ever before to get the help of professional financial advice.

But does financial advice really make a difference?

Once again, the answer is yes. In 2017 research was published by ILC-UK 2017 – based on the largest representative survey of individual and household assets in Great Britain – The Wealth and Assets Survey. The Wealth and Assets Survey had interviewed a total of 91,000 household over a number of years.

The resulting research is some of the most thorough and reliable of recent years, which revealed “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.”

Dividing those who took part in the survey into categories which included “affluent but advised” and “affluent but not advised”, the research revealed that the “affluent but advised” group was “6.7 percentage points more likely to save and 9.7 percentage points more likely to invest in the equity market than the equivalent non advised group.” It also found the “affluent but advised” group accumulated on average £12,363 (or 17%) more in liquid financial assets than the equivalent non-advised group, and £30,882 (or 16%) more in pension wealth.” The “affluent but advised” group earn £880 (or 16%) more per year than the equivalent non-advised group.” by way of pension.

This evidence doesn’t stand alone. The American registered investment advisor, Vanguard, have carried out their own research into the financial value of financial advice. Their research focused on “the difference between the return that investors might achieve with an adviser and the return that they might have achieved on their own.” The research identifies seven key areas where advisers add value before estimating values for each area, “arriving at a total … figure of around 3% per annum.”

We’ll deal with those 7 key areas in our next Journal update and if you would like to know more about the detail of the Vanguard research at each stage of the advice process, please get in touch. We know it sounds like we’re blowing our own trumpet, but the research clearly shows that financial advice can make a big difference. And in our next blog, we’ll explain more about how that’s delivered.