Advised Canadians are far better off: IFIC

Here’s a suggestion for those who question the value of financial advice: take it easy…but take it.

Having advice is strongly associated with the accumulation of financial wealth regardless of income level or age, according to an Investment Funds Institute of Canada (IFIC) report.

The study, titled The Value of Advice: Report, reveals financial advice leads to greater accumulation of assets. It provides a clear, unbiased view of what advice means to the financial well-being of Canadians and how it builds their confidence in their financial future.

The report presents third party empirical data to show Canadians who favour financial advice are financially better prepared for retirement.

“Canadians have been, and continue to be well served by financial advice and the advisors who provide it,” said Joanne De Laurentiis, president and chief executive officer, IFIC. “We know that individuals choose, overwhelmingly, to seek the assistance of advisors when important life events occur and benefit financially when they do.”

The findings of the study provide a boost for the advice industry against the backdrop of public policy reforms affecting the financial sector.

It highlights the role of an advisor as a trusted source of financial information who helps improve clients’ financial literacy and that of their children. In addition, financial advice is essential to customize solutions for investors which include setting and achieving planning targets and setting the right vehicles and plans. It makes the provision for individual choice by helping clients choose the right vehicles and plans to optimize outcome for their individual circumstances.

Perhaps the most stunning example of the value of advice was among lower income Canadians. Unadvised households with an income of less than $35,000 had, on average, $11,227 in investable assets. But households in the same income bracket that did employ a financial advisor had, on average, $119,318 in investable assets.

That outperformance slipped a little for the $35,001 to $54,999 income bracket – with unadvised households seeing their average asset base more than double to $27,104, while advised households had $125,348. But there was another jump forward for advised households in the $55,001 to $69,999 bracket ($197,273 in advised assets, versus $29,119 in unadvised assets).

“Having advice is strongly associated with the accumulation of financial wealth regardless of income level,” the report points out.

When the data was sliced up according to the age of the head of the household, the outperformance was strongest at or above the age of 65, with advised investable assets averaging $272,761, versus $66,064 for unadvised households. The narrowest spread was still a cakewalk for advised households, as those under the age of 45 had $79,074 in assets, versus $24,787 for their unadvised peers.

Advised investors were far more likely to have an RRSP (69%) than unadvised investors (29%), and 27% of those employing an advisor had a TFSA, compared to just 14% of those who were going it alone.

The use of RRIFs was similarly skewed in favour of advised investors over the age of 65 (55% versus 18%), and RESP use among those under 45 years of age was higher as well (30% of advised, versus 10% of unadvised).

The report also found that advised Canadians were more confident they would have enough money in retirement (74% versus 52%), were more satisfied with their current financial situation (72% versus 53%), more comfortable with their debt levels (69% versus 47%), and believed they would be better off in one year’s time (71% versus 57%).

“Advisors help individuals in setting and maintaining planning targets, and assisting in their choices of the right vehicles and the right asset allocations for reaching their goals,” the report concludes. Advised Canadians are shown to have substantially higher amounts of investable assets than non-advised Canadians, in both registered and non-registered forms and across all levels of income and age groups. The strong correlation noted in this report between investable assets and advice points to the significant role that advisors have played in Canada’s achievement of one of the most balanced and strongest retirement systems in the world.”

(08/12/10)