Financial advisers have helped clients fend off the worst losses of the COVID-19-induced market moves and added more than 5.2 per cent a year in value to their portfolios over the past year, according to research released by an investment manager.
The fourth annual “Value of an Adviser” report, released today by Russell Investments, showed that abandoning long-term investment strategies and selling equities following the market crash were the most critical mistakes non-advised investors made during the COVID-19 pandemic.
The report estimated about 1.5 per cent, or $40.5 billion, of the total funds under management in the superannuation environment switched to cash after investors were spooked by the market’s instability.
“The beneficial impact for an investor who started 2020 with a portfolio worth $250,000 and stayed in the market until 31 May this year – rather than switching to cash when markets were volatile in March 2020 or flat in March 2021 – was as large as $40,000,” it stated.
It added the value of advice was based on five elements, with preventing behavioural mistakes contributing 2 per cent, advising on appropriate asset allocation adding 1.1 per cent, optimising cash holdings adding 0.6 per cent, and tax-effective investing and planning contributing 1.5 per cent. The fifth element is expert wealth management knowledge.
Russell Investments director and head of business solutions Bronwyn Yates said investors that have been educated by financial advisers are more prepared for turbulent market conditions.
“Non-advised investors sometimes fail to make the correct decision when markets are volatile and often incorrectly time their exit and subsequent re-entry to the market,” Yates said.
“This is an issue which plagues both those with loss aversion and those convinced they can beat the market. It’s also a timely consideration for the growing ranks of millennials and gen Z turning to ‘finfluencers’ as their source for financial advice.
“The value of advisers has never been more obvious than during the past year and is particularly apparent now as many Australians use their time in lockdown to renew their interest in investment markets.
“While it’s positive that investors across generations are becoming more engaged with their finances and that they have more guidance options than ever before, the value of professional advice clearly speaks for itself in our report findings.”
The research also found a link between poor financial education and a lack of interest in asset allocation, despite up to 85 per cent of an individual’s investment outcome resulting from their asset allocation.
“Where there is a knowledge gap, it often relates to investors not understanding the relationship between risk and return and how it can impact their investment strategy and ability to achieve their goals. For example, investors taking on too much risk at the wrong time of their investment horizon or not taking enough risk can lead to significant shortfalls to their objective,” Yates said.
