In response to CRM2, you’ve probably become adept at showing clients not only the fees they pay but also the value you provide. And long-standing clients no doubt recognize your impact on their wealth. But when it comes to potential clients, how can you demonstrate your value?
How about with cold hard numbers, revealed in a study on the value of financial advice conducted by the Centre for Interuniversity Research and Analysis of Organizations. The study analyzes survey responses from more than 1,500 Canadian households, some with and some without advisors.
Significantly, those with advisors had chosen those advisors themselves, as opposed to having been solicited by the advisors. This key feature of the study removes the criticism that households with advice are wealthier because advisors target wealthy households.
The study’s key findings:
- Households with an advisor for 15 years or more accumulated 290% more assets — almost four times as much — than equivalent non-advised households.
- Clients who dropped their advisors between 2010 and 2014 lost a significant percentage of their asset values (34.2%), while clients who kept their advisors saw asset values grow (by 26%).
According to the study, those impressive results are courtesy of the gamma-factor effect: advisors impose discipline on households’ financial behaviour, and those households have higher savings rates.
The gamma factor is significant, because previous insight on the value of advice has focused on the ability of advisors to generate alpha for clients.
Indeed, the alpha focus is evident in, for example, CSA’s proposed targeted reforms and regulatory best interest standard. In that proposal, regulators state one of their five investor protection concerns is that “clients are not getting the value or returns they could reasonably expect from investing.”
Regardless of the validity of that concern, which is made in the context of suitability, this research underscores a key element for successful investor outcomes: access to advisors. In a press release, IFIC urges that preserving that access should inform policy.
The full research paper, which makes comparisons to a similar 2012 study, is available online.