How financial advice helps create wealth.

An article based on a 16 year study by Vanguard Investments Pty Ltd.

Rear view of couple seated on bench reading English text on wall

         

 

Last month I reported on a 16-year study by Vanguard Investments that found a financial adviser effectively adds around 3% to the value of a client’s portfolio over time.

The real significance of this is that you can have a finance professional take care of one of the most important jobs in your life (funding your retirement) for very little, if any, real cost.  This can even be the case for those with smaller portfolios.

However, for many people the main problem is getting started and the cost is often seen as too high or the adviser focus can seem a bit too much on their needs rather than the client.

A major reason for this, unfortunately, is that increased regulation and monitoring has meant advisers have moved to a fee-based model and away from the commissions of yesteryear.  This is a good outcome but it has meant advisers have had to increase entry costs which, in turn, has led many potential clients to see these costs as too high.  A proverbial Catch 22.

It is because of this sort of conundrum that firms like Vanguard Investments have undertaken long term studies.  The outcome from their work is that a WIN/WIN opportunity exists for all.

However, this benefit isn’t just from better investing, though that will often be the case.  It’s the more holistic approach that wins the day.  Vanguard Investments identify the following areas as those that will generate this positive outcome:

  • Suitable asset allocation
  • Cost-effective implementation (expense ratios)
  • Rebalancing
  • Behavioural coaching (Vanguard Investments found this to be the most significant contributor because there are some tasks people struggle with such as budgeting and expense management.  Behavioural coaching addresses this issue).
  • Tax efficiency (An example here is where an investor with a modest portfolio lost more than $250,000 in value over a 10-12 year period because they thought the three stock brokers they used were looking after tax related issues.  They weren’t!  If the planner had been involved sooner the outcomes would have been significantly different.)
  • Total returns versus income investing.

Finally, the concerns many potential clients have over the cost of financial planning means they delay getting help early enough which, in turn, threatens the retirement outcomes they want to achieve.

 

Peter Graham
AcctWeb / PlannerWeb

Latest Accounting News

Jail time for GST fraud

Warning:  Very recent cases where GST fraud have landed business people in jail.       ...

Read More

Correcting GST Errors

            If a taxpayer finds a mistake made on a previous activity statement, they...

Read More

Fuel tax credit rates raised

The ATO have raised the fuel tax credit rates following an update of the December quarter consumer price...

Read More

ATO set to contact clients for overdue TPAR

The Tax Office will begin contacting clients in the building and construction industry about their overdue...

Read More

Reminder on Victoria Property Duties

          Property transfers between spouses and de facto partners in Victoria involving...

Read More

How Australia is performing.

            An up-to-date snapshot of Australia's vital statistics.   Please click on...

Read More

Global outlook summary: Down but not out

Down but not out As the global economy enters its tenth year of expansion following the global financial...

Read More

Bookkeepers remind on incoming TPRS obligations

With the taxable payments reporting system now set to cover five different industries, in-house and external...

Read More

Golden Rules for Deductions

            The Australian Taxation Office now uses sophisticated data analytics to assess a...

Read More

How’s Australia going – vital statistics?

            Please click on the following link to see all this interesting information. The...

Read More

Tax, SMEs set to be ‘political football’ in 2019 as election nears

Small and medium businesses are set for a busy year of tax promises as political parties look to sway voters...

Read More

Cap lifted on popular financing option for clients

APRA will remove its cap on interest-only loans from next year, a move which is set to open more financing...

Read More