If a price could be attached to the value of financial advice would more investors seek consultation on their finances from a third party?
The findings of a new study by the International Longevity Centre (ILC) puts this question into stark focus as it says those who receive financial advice are, on average, £40,000 better off than their unadvised peers.
ILC, an independent think tank that addresses issues of ageing populations, surveyed a total of 5,000 people – some of which had sought financial advice between 2001-2017.
The sample was split into two income groups – the affluent and those "just getting by" – and the financial assets, measured by 2014, of each group's advised set were compared with the assets of the unadvised set.
The survey's findings
The report, The Value of Financial Advice, found that the "affluent and advised" accumulated an average of £12.363, or 17%, more in liquid assets and £30,882, or 16%, more in pension wealth than the unadvised – a total of £43,245.
Similarly, the "just getting by and advised" accumulated an average of £14,036, or 39%, more in liquid assets and £25,859, or 21%, more in pension wealth than the unadvised – a total of £39,895.
The report also suggested that financial advice fostered stronger levels of saving and investment in equity markets.
What does this mean?
Other research efforts have also attempted to quantify how good financial decision making can enhance standards of living.
So, should we all be now rushing to our nearest independent financial advisor so we're more prepared for our financial futures?
Ben Franklin, head of economics of ageing at ILC and one of the report's authors, says that the advice market is not working for everyone, but has clear benefits for customers.
"The clear challenge facing the industry, regulator and government is to get more people through the front door in the first place," he adds.
Steve Webb, director of policy at Royal London, the life insurer and pension provider, says: "What is most striking is that the proportionate impact is largest for those on more modest incomes."
He adds: "Financial advice need not be the preserve of the better off but can make a real difference to the quality of life in retirement of people on lower incomes as well."
The main barrier, according to the ILC report, that put people off from seeking financial advice is trust. Trust both in the individual's financial advisor, and in their own level of financial competence.
Wade Pfau, in his different study, also called The Value of Financial Advice, also identifies cost as a potential barrier.
He asks if an advisor charging a 1% fee can justify the cost. It depends on whether you have the time, energy and knowledge to do it on your own, and whether your financial planner is capable of implementing good planning decisions.
"If your advisor is less than capable, you might be better off saving yourself the fee, or taking your business elsewhere," adds Pfau.
Studies clearly show that taking financial advice has its benefits – the accumulation of more financial and pension wealth thanks to increased saving and capital market investing.
"Those in retirement are likely to have more income," the ILC report says.
It adds: "Our results therefore demonstrate, in a statistically robust way, the importance of financial advisors in delivering true value for their customers."
Raising trust in the industry, therefore, is a primary consideration for driving more people to seek financial advice.
The report concludes: "Only a minority of the population has seen a financial advisor. Since financial advice has clear benefits for its customers, it is a shame that more people do not use it."