It has been a volatile couple of months for global stock markets. The coronavirus has impacted markets around the world, with significant fluctuations in share prices happening on almost a daily basis.
As an example of the turmoil, 12th March saw the biggest one-day fall on the Dow Jones since 1987, while the week before Easter saw the biggest weekly rise in the value of the index since 1974.
In times of economic turmoil, investors can often make knee-jerk and emotional decisions which can damage their financial future. Indeed, March saw record outflows as investors retreated from the market.
Over time, research has found that clients who seek financial advice see better outcomes than ‘DIY investors’ who don’t. Here’s what you need to know.
Investors pull a record sum from UK funds
We’ve previously looked at the concept of ‘loss aversion’ and how it can lead investors to make emotional decisions about their finances.
According to the latest data, market volatility during March saw investors pull almost £9 billion from UK-based funds. The figures from Morningstar show that UK funds saw their largest ever monthly net outflow in March 2020, with £8.7 billion withdrawn during “one of the quickest swings into a bear market” in history.
A net £5.5 billion was withdrawn as bond prices fell when central bank rate cuts and quantitative easing measures were not sufficient to allay market concerns.
Equity funds saw an outflow of £769 million after global markets experienced dramatic falls due to the crisis.
Markets hit their lowest point of the crisis so far towards the end of March, with the S&P 500 falling 27% from the start of March to March 23rd and the UK’s blue-chip index losing 25% in the same time period.
The value of financial advice
If you’re a so-called DIY investor, it’s easy for you to be influenced by negative news headlines or articles you read in the press. Investment decisions can often be driven by emotion: by greed or fear, by worry or panic.
Your alternative is to work closely with a financial planner. 2018 research published in the Telegraph found that the typical unadvised DIY investor can miss out on up to 11.3% of potential gains a year, compared with a managed portfolio.
Working with a financial planner as a mentor or sounding board helps you to remain objective and keep your plans on course. Your planner can execute trades based on analysis and information, providing advice when you need it while encouraging you to take the emotion out of decisions.
Forming a trusted long-term relationship with a financial planner also gives you the peace of mind that a qualified professional is taking on many of your financial stresses. You don’t need to regularly check the markets, make trades or worry about your wealth. Your adviser can do all this for you, affording you the freedom to concentrate on more important matters.
This wealth of knowledge and experience is even more apparent in a Chartered firm such as Sovereign. For us to achieve this ‘gold standard’ in financial planning, we must demonstrate:
- High levels of technical knowledge obtained through advanced professional qualifications
- A commitment to developing our skills and knowledge further
- Adherence to strict ethical standards.
As well as the ongoing support and coaching that a financial planner can provide versus ‘doing it yourself’, research has also shown that there is a tangible, ‘pounds and pence’ value to financial planning.
In a study about the value of advice, Vanguard found that, while the exact amount may vary depending on client circumstances and implementation, an adviser adds value by:
- Behavioural coaching, and helping clients maintain a long-term perspective and a disciplined approach. Potential value add: up to 1.50%
- Employing cost-effective investments. Every pound paid for management fees, trading costs, and taxes is a pound less of potential return for clients. Potential value add: up to 0.92%
- Maintaining the right diversification through rebalancing assets and minimising risk. Potential value add: 0% to 0.43%
- Implementing a spending strategy. A planner can help retired clients make important decisions about how to spend to minimise total taxes paid and increase the longevity of their portfolios. Potential value add: 0% to 0.48%
A separate long-term piece of research by the independent charity and think-tank, the International Longevity Centre (ILC), reinforces the financial value of advice. Their report found that:
- People who received financial advice between 2001 and 2006 were more than £47,000 better off, on average, by 2014/16 than those who took no advice
- Pension pots were 50% higher, on average, for those who saw an adviser regularly compared to those who only took one-off advice at the start.
Get in touch
If you want to find out how Chartered financial planning can add value, please get in touch. Email firstname.lastname@example.org or call us on 01454 416653.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.