Financial advice

Is it worth using an IFA or can you just “do it yourself”? – Part 2

This article was originally published on Juno Wealth’s website. Juno Wealth was acquired by Progeny in February 2019.

In our last blog post, we looked at two questions: “do you need to take financial advice?” and “does financial advice make a difference to your overall financial position?” As the answer to both was yes, this blog will take a look at just how the value of financial advice is delivered.

How do you get value from financial advice?

Of course, it’s not easy to quantify the value of advice, although the research in our last post provides a reliable indication. Every product, person and objective is different. The value of financial advice comes in different forms; from advice on the best products at the best price through to providing emotional support and guidance.

Perhaps the most obvious area of value as professional, qualified and experienced advisors, we’re able to advise on the type of financial product and the market, based on what’s right for you.

However, Vanguard, authors of the research described in Part 1, have identified 8 areas where the value can be clearly demonstrated and to some extent, quantified. We’ve taken those steps as a starting point and expanded on them below:

  1. Asset allocation. Perhaps the most obvious area of value as professional, qualified and experienced advisors, we’re able to advise on the type of financial product (shares, bonds etc.) and the market (Europe, America), based on what’s right for you. That isn’t necessarily as clean cut as it looks. It involves a thorough understanding of you, what you want to achieve, your tolerance to risk and your lifestyle. This means we have to have technical product know how, a psychological understanding of you, and a good measure of objectivity. This 3 tier combination is not something many individuals have.
  2. Life planning. Not on Vanguard’s list and hard to financially quantify, but an area where experience tells us we add lots of value is going through the process as described above of understanding what you want to achieve in life, now and in the future. Clients often describe it as cathartic and enlightening, ultimately by delving deep into what you want your future to look like, it leads to a more fulfilling retirement and sense of purpose.
  3. Keeping your portfolio on track. Different types of investments perform differently over time, and your objectives and goals may change too. As Vanguard explain,

“…equities outperform bonds over the long term, the equity weighting would be likely to increase at the expense of bonds. And because equities are riskier than bonds, the result is a portfolio that is more risky than you had originally discussed”

Combing a regular review of both not only provides peace of mind but the Vanguard evidence suggests this can make a big monetary difference too,

“To quantify how much, we looked at the performance and volatility of a portfolio of 60% equities, 40% bonds that was allowed to drift. We found that a very similar level of volatility could be achieved through a regularly rebalanced portfolio made up of 70% equities and 30% bonds. However, this latter portfolio delivered a return that was 0.43% per annum higher than the drifting 60/40 portfolio. So the value of rebalancing can be assessed at 0.43% per annum.”

  1. Keeping costs down. Different fund charges and costs can have a big impact on and can compound over time. And that means they’re eating into your assets. The example Vanguard give is a good one, “… on a static £100 investment, with an annual charge of 2%, only 82% will be left after 10 years. With an annual charge of 0.2%, over 98% of the fund will remain in 10 years.”

Our role as advisors is to find you a high quality but low-cost fund.

  1. Behavioural coaching. We’ve blogged about this before and it’s much more significant than many clients realise. Successful investing is often counter intuitive. Take Brexit for example when in the immediate aftermath of the leave vote, a number of our clients saw the destabilised market and wanted to sell quickly to prevent further loss. But in fact, the markets stabilised and then improved fairly quickly, meaning an overall gain rather than a loss. The emotional pull of money, security, habit and media can’t be overstated, and it can be very hard to be objective and keep the long game in mind when it comes to your investments.

Behavioural coaching is how we manage that. We’re an independent but informed presence that can steer your financial ship sensibly through troubled waters, ensuring you avoid costly knee jerk reactions.

We’re an independent but informed presence that can steer your financial ship sensibly through troubled waters, ensuring you avoid costly knee jerk reactions.

  1. Tax efficiency! In one of our recent blogs, we described how one small (but additional) contribution cost someone we know dear, because they simply hadn’t appreciated the full tax implications. The difference between tax efficient and non-tax efficient can be thousands!
  2. Drawdown In Part 1 of this blog we touched on the increasingly complex world of managing your own pension. Again, this is an area where we think we provide enormous value. There’s the technical aspect of the best way of withdrawing capital while preserving the growth potential of the remaining portfolio.

Vanguard quantify this value in a number of ways but one of their more straight forward illustrations is,

“… for clients who do have some tax liability and who wish to make withdrawals, sound advice can make a real difference. For example, a client with a £250,000 portfolio who is within the capital gains allowance and only has 20% of the portfolio in taxable accounts could still generate savings of 0.29% per annum by spending in a tax efficient way.”

  1. Cash flow planning and management. Apart form the technical aspect of drawdown, there’s also the insights that come with our cash flow planning software. Can you afford that holiday? Can you afford a particular standard of living – now, or in the future? The value of knowing the answers to such questions may be hard to quantify but they can be invaluable and that’s another thing we can provide.

In short, sound financial advice can have a positive impact on wealth accumulation in a number of ways, both tangible and less so. If we return to some of the statistics we touched on in Part 1, which illustrated the high level of satisfaction most people experience having taken financial advice. And if we take an increasing uncertain political and economic future, at Progeny we think professional advice now needs to become one of the non-negotiable aspects of your future.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Tracey Evans

Associate Director, Wealth

Tracey is passionate about helping clients to see their ‘big picture’ and has been doing so for nearly 30 years.

Learn more about Tracey Evans