The Value of Advice

Below are 4 key points extracted from the Investment Funds Institute of Canada report, titled The Value of Advice Report 2012.

Advice has a positive and significant impact on financial assets after factoring out the impact of close to 50 socio-economic, demographic and attitudinal variables that also affect individual financial assets.

The study reveals that the presence of a financial advisor, when engaged for periods of four to six years, seven to 14 years, and 15 or more years, contributes positively and significantly to the level of assets when the impact of all other variables is factored out. Moreover, the impact on the level of assets is more pronounced the longer the tenure of the advice relationship. The chart below shows financial assets for households that received financial advice over various time periods, as a multiple of the financial assets of households that did not receive advice.

The positive effect of advice on wealth accumulation cannot be explained by asset performance alone: the greater savings discipline acquired through advice plays an important role.

The paper finds that advised households save at twice the
rate of non-advised households (8.6% compared to 4.3%).
The researchers develop a model to explain the savings rate among those who save. They find that financial advice increases the probability that a respondent saves and, among those who do save, it increases the rate of saving.

According to these findings, a 1% increase in the ‘savings rate’ increases the level of assets by 8.7%.

Advice positively impacts retirement readiness, even after factoring out the impact of a myriad of other variables.

Having a financial advisor is found to have a strong and significantly positive effect on the level of retirement readiness. Controlling for all other explanatory variables, the researchers show that having a financial advisor increases the probability of a respondent declaring confidence in achieving a comfortable retirement by more than 13% relative to a non-advised respondent.

Having advice is an important contributor to levels of trust, satisfaction and confidence in financial advisors — a strong indicator of value.

Controlling for all other explanatory variables, the research study identifies that an advised respondent has a 32% higher probability of declaring trust in financial advisors than a similar non-advised respondent.