Why advisors must celebrate 'remarkable' impact on clients' accounts

2022 provided proof of value - but finance professionals must demonstrate that to investors

Why advisors must celebrate 'remarkable' impact on clients' accounts

A study has revealed how advisors added 3.9% in value to client accounts in 2022 compared to the loss that non-advised investors sustained.

“Engaged advisors have a remarkable effect on their clients’ financial success, and they need to demonstrate that to their clients,” Danny Kabeya, division director for eastern Canada and co-head of the Canadian business for Russell Investments Canada Ltd., told Wealth Professional on releasing its eighth-annual Value of an Advisor study for Canada. It’s been producing its U.S. study for a decade.

The study confirmed that the 40-year trend toward having advisors provide increasingly complex financial advice rather than just being a stock broker is paying off for investors with advisors.

He noted that Russell Investments’ recent market research showed that, even though 2022 was a difficult year with central bank interest rate hikes and both equities and bonds declining, investors who stayed in the market from January 2020 to December 2022 saw their $10,000 climb to $11,182.

That contrasted with investors who remained in cash or left, then re-entered, the market. The value of their $10,000 fell to $8,555.

“That gives credence to the old adage, ‘it’s not about market timing, it’s about time in the market',” said Kabeya, noting that advisors are more likely to do behavioural coaching with clients to help them stay invested and weather tough market cycles rather than pulling out and losing money.

Kabeya recommended advisors showcase what they’ve done for them when working with clients.

That’s particularly true when it comes to how the advisors can save their clients on taxes.

“If you can reduce the tax drag on investors, then they’re earning more and keeping more. The compounding effect of that is greater and it contributes to their financial success,” said Kabeya. “The study highlights that the tax drag is 68 basis points. The more advisors can use effective tax planning and strategies, the better off investors are. So, advisors really need to embed that into their client reviews and show them the difference that they make.”

The 2023 study aimed to quantify an advisor’s increasingly complex role in serving clients. It looked at market returns and highlighted timing and motion.

It showed that Cnadian advisors added that 3.9% in value to clients by delivering comprehensive wealth management services. So, even financial advisors who charge an average 1.5% fee delivers more value to each client’s account, particularly as they work to understand each client’s goals, circumstances, risk tolerance, and preferences, then prepare, and regularly review, clients’ financial plans and counsel them on investing and capital markets.

Russell Investments developed its value of an advisor formula to help advisors understand, and communicate, the full value of their services. It noted that behavioural coaching added 1.95%, customized client experience and family wealth planning added 1.1% value, tax-smart planning and investing added 0.68% value, and active rebalancing of investment portfolios added 0.17% value.

“Advisors should be proud of the impact they have on their clients, and continue to celebrate why advice is important,” said Kabeya. “People need advice and advice adds impact over time. That’s a good point that we want to continue to bring forth.”