Why getting financial advice really can boost your bank balance
Those who had the foresight of taking independent financial advice during the first decade of the 21st century are now around £40,000 better off than those who did not – a sum most certainly not to be sniffed at and one that underscores the point that getting financial advice can really boost your bank balance.
That was one of the keynotes made in a speech by former Pensions Minister, Sir Steve Webb, during the two-day Festival of Financial Planning organised by the Financial Planning Society (FPS), which opened on the 9th of November. Attended by almost 3,300 delegates, including ourselves from Independent Pension Specialists Limited (IPSL), it was the largest financial planning conference ever to be held in the UK.
The value of financial advice
A number of the themes raised by Sir Steve Webb had been identified in a detailed and comprehensive report by the International Longevity Centre UK (ILC-UK), and sponsored by insurers Royal London, entitled “The Value of Independent Financial Advice”, which was published in July of 2017.
The research conducted by ILC-UK is the principal source for the assertion that people are shown to be better off after having taken independent financial advice. Specifically, the report investigated the financial circumstances of two main groups: the “affluent” (people who are wealthier, better educated, home owning and generally married) and the “just getting by” (who are less wealthy, have poorer education, are more likely to be renting and may be divorced, separated or widowed).
For these two groups, the study examined whether individuals had or had not received financial advice during the period 2001 to 2007 and compared their respective financial situations in the period 2012 to 2014 (in other words, between 11 and 7 years later):
- those in the group described as “affluent but advised” had accumulated an average of £12,363 more in cash and other liquid assets than the members of the same group who had not taken advice and £30,882 more in pension savings – they were better off by a total of £43,245;
- a little more surprising, perhaps, is the fact that the “just getting by” fared almost as well;
- the “just getting by and advised” acquired an average of £14,036 more in cash and other liquid assets than the members of the same group who had not taken advice and £25,859 more in the value of their pensions – they were better off by a total of £39,895.
Savings and investments
The study also found significant differences in the levels of savings and investments made by members of the two groups, again depending on whether or not they had taken independent financial advice during the period under review:
- in the affluent group who had taken advice, 6.7% were more likely to have been saving and 9.7% more likely to have been investing in the stock market than those who had not sought independent financial advice;
- in the just getting by group who had taken advice, 9.7% were more likely to have been saving and 10.8% more likely to have been investing in the stock market than those who had not sought independent financial advice back in 2001 to 2007.
Financial gains were also made in terms of pension income, comparing those who had received financial advice and those who had not – with even those “just getting by” also enjoyed higher pension incomes than others who had not taken financial advice:
- the affluent who had received financial advice during the period 2001 to 2007 were earning an average of £880 a year more by 2012 to 2014 than other members of the group who had not taken such advice; and
- the just getting by who had received financial advice during the period 2001 to 2007 were earning an average of £713 a year more by 2012 to 2014 than other members of the group who had not taken such advice.
In the face of such evidence
The research shows a pretty clear connection between seeking independent financial advice and the prospects of becoming financially better off in terms of liquid assets, pension values and pension income.
Yet the reality is that still only 16.8% of those surveyed actually consulted a financial adviser during the period 2012 to 2014.
Indeed, even among those who bought an investment product in this period, 40% of them did so without the benefit of financial advice. That figure rose to a worrying 78% amongst those who arranged a personal pension plan.
Although the study by ILC-UK is unable to offer a definitive answer for such an apparently simple failure to take advantage of professional advice, it is suggested that there may be something in the human psyche the “switches off” when faced with difficult or complex decisions and opts for more immediate, rather than longer-term, rewards.
As has been shown, a failure to kick against what might be human nature may have potentially costly results.
This data is correct as at the time of writing.