New research from Royal London and the International Longevity Centre has shown that those who received professional financial advice benefitted financially over a decade later.
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 ‘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.
“Many of those who receive financial advice can testify to its value but it has always been difficult to quantify.”
One of the key findings from the research is that the proportionate impact of taking advice is greater for those of more modest means.
“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, said David Sinclair International Longevity Centre director.
For the ‘affluent’ group identified in the research, the uplift from taking advice is an extra 24% in financial wealth (for example 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.”