• Receiving professional financial advice between 2001 and 2006 resulted in a total boost to wealth (in pensions and financial assets) of £47,706 in 2014/16.
• The benefits of financial advice are potentially greater for those we term “just getting by” than for those we consider “affluent”.
• Fostering an ongoing relationship with a financial adviser leads to better financial outcomes.

Quantifying the value of financial advice has always been a challenge because people who take financial advice have different characteristics to those who do not.  But what if it was possible to control for those differences and isolate a pure ‘advice effect’?  This was the challenge set by Royal London to researchers at the International Longevity Centre – UK (ILC).

And new research, What it’s worth: Revisiting the value of financial advice from the ILC suggests that, holding other factors constant, those who took advice around the turn of the century were on average over £47,000 better off a decade later than those who did not.

This result comes from detailed analysis of the government’s Wealth and Assets Survey which has tracked the wealth of thousands of people over two yearly ‘waves’ since 2004-06.  The wealth uplift from advice comprises an extra £31,000 of pension wealth and over £16,000 extra in non-pension financial wealth.

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% in financial wealth (e.g. shares, ISAs, bank accounts) compared with 35% for the non-affluent group. On pension wealth, the uplift is 11% for the affluent group compared with 24% for the non-affluent.

An important explanation for the improved outcomes for those who take advice is that they 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, this result is not controlled for other differences in characteristics, so may at least in part reflect greater engagement by those who have larger pension pots.

Commenting, Steve Webb, Director of Policy at Royal London said:

“Many of those who receive financial advice can testify to its value but it has always been difficult to quantify. 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 added:

“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 take out investments and pensions do not use financial advice. And only a minority of the population has seen a financial adviser. We must now work together to get more people through the ‘front door’ of advice.”

What it’s worth argues that industry and policymakers should work together to:

• Ensure advisors can communicate clearly about the costs and benefits of advice
• Harnessing technology as a route to deliver quality advice at a lower cost
• Ensuring that those who do not receive professional advice can still achieve good outcomes

Tom Dunbar, Distribution Director at Royal London Intermediary, added:

“These findings build on those of the previous research and clearly show the impact financial advice is having on people’s overall wealth. This effect is shown across the earnings range from mass affluent to high net worth and shows the great work being done by advisers across the UK. As an industry, we need to do much more to promote the benefits of good quality ongoing advice.”

Contact:

Royal London: Steve Webb, Director of Policy – 07875 494184 – steve.webb@royallondon.com

ILC: Lily Parsey or David Sinclair – 020 7340440 – LilyParsey@ilcuk.org.uk

Notes to editors:

“What it’s worth: Revisiting the value of financial advice” is available from: https://ilcuk.org.uk/wp-content/uploads/2019/11/ILC-What-its-worth-Revisiting-the-value-of-financial-advice.pdf 

In 2017, the first attempt at quantifying the value of advice was undertaken in partnership between Royal London and the ILC.  The report – ‘the value of advice’ – can be found at https://www.royallondon.com/siteassets/site-images/site-specific/media-centre/press-releases/ilc-and-rl-the-value-of-advice-final-report-july-2017.pdf . That report used Wealth and Assets Survey data up to the 2012-14 Wave. This new report takes advantage of the data for 2014-16 and provides up-to-date estimates, as well as some new analysis.  On a consistent basis, the latest report suggests an ‘advice effect’ around £5,000 larger than two years earlier.