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The value of advice (part 2)

A couple of months ago, we looked at some of the ways that financial advice can add value. From convenience and personalisation to tangible and measurable financial benefits, there are lots of reasons to take professional advice rather than going it alone.

In the second part of our guide to ‘the value of advice’, we’re going to look at some of the other ways that taking financial advice can benefit you.

We can help you make better decisions

If you’re investing for the long term – which most clients are – then it pays not to change your approach too often. While it’s important for you to have a regular review of your arrangements, it’s also crucial to take a balanced view of your investments.

Humans have lots of behavioural biases that can lead us to make bad decisions. And, many of these biases can adversely affect the way that we invest.

Here’s an example. Humans tend to panic when markets fall, and our instinct is to react by cashing in our investments. Conversely, we’re confident when markets are rising and so we want to invest more.

What this means is that we’re selling when markets are cheap and buying when markets are expensive! And, research from Betterment has found that individual investors lose on average between 1.2% and 4.3% to the ‘behaviour gap’ while, for the most active investors, the gap increases to 6.5%.

This could be as much as £4,300 on a £1,000 investment. Over a decade, this would compound to more than £60,000 assuming that markets grew overall at 5% a year.

Taking financial advice can help you to eliminate these behavioural biases and make better investment decisions.

We can reduce your investment costs

When you invest money, there are some costs associated. It’s important to remember that these vary significantly between financial advisers and investment providers.

  • Recent research by VouchedFor found that one-off charges for advice in the UK vary from 0.5% to 5% of the assets you want to invest. The average fee submitted to the site was 1.74%
  • Ongoing yearly fees for managing your investments range from 0% to 2%. The average ongoing fee submitted to the VouchedFor site was 0.79%
  • Research by the Financial Conduct Authority found that charges on £5,000 invested in a stocks and shares ISA can vary from 0.2% to 2.4%, with a potential £650 difference in returns over a 5-year period, assuming a 5% compound annual growth rate.

It’s clear that costs can have a significant impact on your investment return. That’s why we always select a wrap platform that adds real value as well as making portfolio management easier. We’ll select one that meets your needs and that, crucially, is also cost-effective.

Reducing the costs of your investment portfolios can make a substantial difference to your long-term returns. Saving 2% per year on a £150,000 portfolio could save more than £45,000 every ten years.

We can help you to pay less tax

Paying less tax means more potential money in your pocket. It’s of the simple ways that an adviser can add real value and help your money to grow faster.

For example, we could add a 20% boost to your investment by using tax reliefs. That’s equivalent to £4,000 on a £20,000 investment.

And, even in relatively small estates, the tax man can be the biggest beneficiary from your wealth. We can make sure your most valuable assets go to those that you want, which can result in an Inheritance Tax saving of thousands.

We make your financial plan simpler and easier to understand

As we saw in our previous article, there are both tangible and intangible benefits to financial planning. As above, there are measurable benefits in terms of cost savings and improved investment returns.

There are also intangible benefits that really add value. For example, one of the key roles of a financial adviser or planner is to make the complex simple. They will help you to understand your financial life, and keep you focused on achieving your goals.

When you meet your adviser for a regular review, they will explain why your finances are arranged in the way that they are. You’ll always know what everything is for, and how it supports your overall financial goals.

Additionally, the simpler we can make your financial plan, the more likely you are to stick to it. In fact, that’s a key measure of our success.

Regularly meeting your financial adviser also means that your risk profile is regularly reassessed. By doing this, it always ensures that your investments are appropriate for you and the level of risk you’re prepared to take.

Establish what is valuable to you

As we have said in the past, working out the value of advice will depend on what is important to you. You may get value from:

  • Saving time
  • The peace of mind of knowing that you are being looked after
  • Cost savings
  • Better investment returns
  • Less hassle and paperwork
  • Ensuring your family are protected and your business secured
  • Having an expert on the other end of the phone when you need advice

Whatever your priorities, advice can benefit you in many ways. We work with you to understand your goals and aspirations, and how your finances can help you to do this. We’re keen to understand what adds value to you, and this way you can get the most out of financial advice.

We’re always here if you need to speak to us. Email hello@sovereign-ifa.co.uk or call 01454 416 653.

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