Why work with a Financial Advisor?
You earn a decent income, you’re smart about money, you’ve got investments and your plan seems to be working. Why would you work with a financial advisor? Is advice worth the cost? You can do it on your own, but research says you’ll be further ahead with an advisor, even after you pay for their services.
An advisor charges fees. Are you further ahead to do all of your planning and investing on your own? Evidence suggests not. Two separate studies show conclusively, there is value (even after fees) to working with an advisor.
An independent study in 2012 of Canadian household wealth accumulation conducted by CIRANO (Centre interuniversitaire de recherché en analyse des organisations), found a significant difference in wealth development between households who work with the advice of a Financial Advisor and those who do not.*
The link to this detailed report is below and it is a fascinating read if you have time, but here’s their summary if you don’t have time today:
“Specifically, a respondent having a financial advisor increases the probability of having a positive savings rate by 26 percentage points, relative to a ‘comparable’ non-advised respondent.” “Thus a respondent with a financial advisor and a positive savings rate will have a savings rate that is 5.9 percentage points higher than an otherwise ‘comparable’ non-advised respondent.” “The effect of having a financial advisor on the expected savings rate, holding everything else constant, translates into a7.9 percentage point increase in the expected savings rate.” “This is an important effect. Repeating the exercise for the expected non-cash ratio and the expected RRSP ratio indicates that having a financial advisor increases the values of these ratios by 4.3 and 4.8 percentage points respectively.”
From these numbers and using statistically significant coefficient estimates, one can infer that for two identical individuals, the one with a financial advisor will have 106% more financial assets, or 2.06x the level of financial assets of the non-advised respondent.”
Econometric Models on the Value of Advice of a Financial Advisor, Montréal 2012 (Click here to download the Project Report.)
A second study conducted two years earlier (2010) also recommends the use of a financial advisor. This concise easy to read report provides clear illustrations comparing households with and without financial advisors: their savings, their comfort level with debt, their retirement investments etcetera. This report from The Investment Funds Institute of Canada reported findings that “Investors who work with financial advisors (advised investors) have more wealth and investible assets, on average, than those who do not.” (Click here to download the report.)