Financial advisors help investors remain steady when market volatility rises

Financial advisers are a steady hand when markets wobble. But do they deliver on the returns front? New data shows that it depends on a few key things.

Financial advice provides peace of mind, but does it deliver outsized returns?

What is the value of a financial adviser? At least one benefit, it seems, is having a steady hand when markets are in flux. Another is access to asset classes that can often be out of reach for the average investor. But what about returns?

New data from Investment Trends, compiled for The Weekend Australian, attempts to quantify the merit of financial advice, looking at the recent experience of advised and unadvised investors in self-managed super funds. (Keep in mind this is only a sample of SMSFs in the market.)

For a start, SMSF investors who use advisers appear to be more conservative in terms of their profile, the research found.

When asked their main goal in selecting investments over the coming 12 months, advised investors were more likely to say a sustainable income stream or achieving a balance of capital growth and managing risk, while the unadvised were evenly split between maximising capital growth and building a sustainable income stream, with a slightly lower proportion wanting a balance of growth and risk.

“That was quite surprising to me,” says Investment Trends’ head of research Dr Irene Guiamatsia. “But then they may be more conservative (and seek out advisers) because they are perhaps a bit less confident in making those decisions,” she suggests.

On the asset allocation side, unadvised investors are much more likely to have more invested in direct shares than their advised peers, and a lower allocation to managed funds, hybrids and alternatives (see chart below). This makes sense, since advisers have better access to managed funds and alternatives.

Private markets

We may see an even greater divergence in asset class preference in the near term: A new report by global investment manager Hamilton Lane has found a third of advisers plan to allocate 20 per cent or more of client portfolios to private markets in 2025.

While this is a global report, Hamilton Lane’s head of private wealth in Australia, Scott Thomas, says the findings correspond with what he’s seeing on the ground with local clients.

“The strong interest in private markets among our Australian private wealth clients is directly aligned with the report’s findings, which underscore a global shift towards this asset class for diversification and long-term performance enhancement,” Thomas notes.

Part of the current appeal of private markets likely comes from fears that listed markets, having had a stellar 2024, are unlikely to deliver a repeat performance this year. It’s early days, but Australian and US sharemarkets were positive in January, even with the recent AI stock wobbles.

When it comes to sharemarket volatility and corrections, new research by BT Financial found advised super members were better prepared to endure market volatility, with more confidence and consistency in their asset allocations in different market conditions than the unadvised.

“This is particularly evident in periods of significant volatility, such as during Covid in 2021, when the average allocations for non-advised clients (particularly those nearing retirement) dipped substantially, reacting to short-term market conditions,” BT Financial CEO Matthew Rady says of the findings.

“In contrast, portfolios for those clients with advisers were more consistent in their asset allocation during this period,” he adds. The findings were based on 150,000 Panorama super and/or pension accounts in 2021 and 2024.

Prepare for the worst

This is further backed up by data compiled by Colonial First State for The Weekend Australian, which showed advised investors are more mentally prepared for downturns: 38 per cent of advised super members in its growth funds expect to make a loss every three to five years, versus 26 per cent in the unadvised cohort.

While Investment Trends’ research found advised SMSF investors had more conservative profiles, both BT and Colonial First State found their advised super members were more comfortable with risk and allocated more capital to growth assets.

So, advised investors are better at avoiding knee-jerk reactions, keener on steady income streams and more diversified – but does all of that translate to better returns? Not necessarily.

Over 2024, when equities defied expectations, unadvised SMSF investors actually fared better, with an average annual return of 10 per cent, according to Investment Trends. Advised investors saw their portfolio grow by 9 per cent over the year.

But in 2023, it was advised investors who fared better, gaining an average 3.7 per cent compared to the unadvised, at 3 per cent. (Keep in mind these are only very short-term results and unadvised investors have a higher allocation to listed shares, so that would have driven their returns last year.)

“While we can’t necessarily say whether investors would be better off or not (getting financial advice), what we can say is the role that advisers play is to really help investors remain steady when market volatility rises. And that can serve investors well,” Guiamatsia notes.