OPINION: The price of good financial advice

CHRISTOPH Schnelle wonders how much of a difference it makes to have an adviser and finds a firm that has tried to put the difference into numbers.

WHEN I talk to clients who are aged 55 and over, a lot of our conversations are about how their relatives and friends are very sick or have major financial issues while they themselves are actually quite okay, a bit stressed from dealing with all the issues around them, but they are definitely better off than those around them.

After quite a few such conversations in a row recently, and being a statistician, it occurred to me the one thing they all had in common was me as their adviser and I wondered how much of a difference that was actually making to their overall life and not just their bank account.

One of the most trustworthy and biggest investment companies in the world, Vanguard, has also wondered how much of a difference it makes to have an adviser and tried to put the difference into numbers. It concluded that advisers added an average of about 3% a year to their clients' investment returns. They called those 3% "adviser alpha" - alpha is here defined as the difference a particular person makes to investment returns.

Do the maths ...

Three per cent a year, or 2.2% after the adviser's fee, makes quite a difference. Over 20 years it means you would have 55% more than you would have otherwise and even 60 year olds usually still invest for another 20 years. So for someone who might have retired with $800,000 they would now have $1,240,000.

If the adviser alpha was 5% (4.2% after fees) and not 3%, then over 20 years the difference is 128%, which in the above example of $800,000 would be $1,820,000 or $1 million more. Even for those who have much smaller investments it usually means the difference between getting by and doing well or very well.

I find again and again that it makes a vast difference when people have a good, caring and professional financial adviser available to have regular conversations with. A person who is also doing well in their life and therefore walks the talk. Such an adviser will be able to advice on insurance as well as investment and support you to increase your earnings and wealth. This can bring a greater enjoyment and quality to your life both now and into retirement.

Christoph Schnelle ([e-mail]) is the principal of In Your Interest Financial Planning Pty Ltd and Auth Rep 308223 of FYG Planners Pty Ltd AFSL 224543. This info is general in nature and readers should seek professional advice specific to their circumstances.