The ILC’s What it’s worth: Revisiting the value of financial advice research shows that those receiving this advice between 2001 and 2006 saw their pensions and financial assets boosted by £47,706 in 2014/16, when compared to those who did not take this advice.
This research was based on a detailed analysis of the government’s Wealth and Assets Survey, a long term study which has tracked the wealth of thousands of people over two yearly ‘waves’ since 2004/06.
Royal London says this wealth uplift comprises of an extra £31,000 of pension assets and over £16,000 in other financial assets.
One of the key findings from the research is that the proportionate impact of taking advice is greater for those of more modest means. For the ‘affluent’ group identified in the research, the uplift from taking advice is an extra 24 per cent in financial wealth (eg shares, ISAs, bank accounts) compared with 35 per cent for the non-affluent group.
On pension wealth, the uplift is 11 per cent for the affluent group compared with 24 per cent for the non-affluent.
An important explanation for these improved outcomes is that those who take advice are more likely to invest in assets which offer greater returns though with greater risk.
Across the whole sample, the impact of taking advice is to add around eight percentage points to the probability of investing in equities.
The research also found that those who were still taking advice at the end of the period had pension pots on average fifty per cent higher than those who had only taken advice at the beginning of the period. However, Royal London pointed out that this result was not controlled for other differences in characteristics, so may at least in part reflect greater engagement by those who have larger pension pots.
Royal London’s director of policy Steve Webb says that it has always been difficult to quantify the value of advice. “This research uses the latest statistical methods to identify a pure ‘advice effect’ and it is strikingly large.
“If financial advice can add £40,000 to your wealth over a decade compared with not taking advice, it is incumbent on government, regulators, providers and the advice profession to work together to make sure that more people are sharing in this uplift’.
International Longevity Centre Director, David Sinclair adds: “The simple fact is that those who take advice are likely to be richer in retirement. But it is still the case that far too many people who have investments and pensions do not take financial advice. We must now work together to get more people through the “front door” of advice”
The report has been widely welcomed by those in the industry. Punter Southall Aspire’s managing director retail advice Peter Selby says, “The financial world can be complicated. Many people simply don’t understand how to get the best outcome for their savings, investments and pension. This research clearly demonstrates there are significant financial benefits for people who take financial advice.”
The research calls for the industry and policymakers to work together to ensure advisers communicate more clearly about costs and benefits of advice; that technology is harnessed as a route to deliver high quality advice at a lower cost, and that those who do not receive professional advice can still achieve good outcomes, particularly around retirement.