Financial Advisor Fees – Is it Worth It?

Financial Advisor Fees – Is it worth it? 

Research findings show that clients who work with an advisor for 7 to 10 years have almost double the assets of non-advised individuals. Advised individuals save more proportionally, hold a greater amount of assets vs. cash, and have greater returns on their investments because their advisor recommends the investment mix to optimize their risk tolerance and tax efficiencies.

If that’s true why doesn’t everyone have an advisor? The study found that almost half of those who do not have a financial advisor believe that they need more than $50,000 in assets in order to get financial advice. The truth is that anyone can start investing with much less capital; individuals can purchase most mutual funds with as little as $500 for initial investment. So if you start today, you’ll have almost double the assets you would have otherwise held ten years from now!

 

The Academic Research Report Purpose and Methodology

Econometric Models on the Value of Advice from a Financial Advisor” by Claude Montmarquette and Nathalie Viennot-Briot was conducted for CIRANO, the Centre for Interuniversity Research and Analysis on Organizations. The study is one of the only academically defensible papers that addresses the question, “are financial advisors worth the fees you pay?”

Montmarquette and Viennot-Briot used data compiled by Ipsos Reid in a large systematic survey of more than 10,000 Canadian households. Further distinguishing this study is the richness of data, which allowed the researchers to account for many variables including demographic, economic, and attitudinal differences.

Dr. Jon Cockerline makes the academic statistics of Montmarquette and Viennot-Briot’s research report more accessible in his Investment Funds Institute of Canada paper “New Evidence On the Value of Financial Advice”.

 

The Findings

There is a significant advantage in the accumulation of wealth when partnering with a financial advisor versus not having an advisor. The research findings show that clients who work with an advisor for 4 to 6 years accumulate 58% (1.58x) more assets than non-advised individuals, if the advisor relationship has been in place for 7 to 10 years that number jumps to 99% (1.99x) more assets, and finally if the advisor relationship has continued for 15 years or more assets are 173% (2.73x) greater than non-advised individuals. The main reasons for this were found to be:

  • Advised individuals save more than non-advised.
  • The advised increase the proportion of savings the longer the advisor relationship continues.
  • Advised individuals have a greater portion of assets invested vs. holding cash which improves growth of assets over time.
  • The advised see a modestly greater return on their investments vs. non-advised individuals. Advisors help by recommending asset mixes that are right for the client, and by advising on investment vehicles that are optimized for risk tolerance and tax efficiency.

This increased accumulation of wealth positively impacts retirement readiness of Canadians; and just as importantly, when asked, advised Canadians indicate that they feel confident that they will be prepared financially for retirement when the time arrives

 

What the Findings Mean for You and Your Future

One important finding in the study is the fact that there is a broad spectrum of what people believe is the minimum amount of assets required in order to get financial advice. The truth is almost ¾ of people who seek a financial advisor do so when they are starting out with less than $50,000 to invest. On the other hand almost ½ of those who do not have a financial advisor believe that they need more than $50,000 in assets in order to get financial advice. The truth is that anyone can start investing with much less capital; individuals can purchase most mutual funds with as little as $500 for initial investment. It is true that not all advisors will work with small investors, but if you look around or ask for a referral from a friend who has an advisor you will find one to work with. It is not how much one starts with that is important, it is that they start, and the sooner the better. Implementing a savings strategy and sticking with it over the long term will have the most significant impact on the financial future of Canadians.

 

 

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd.

 

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