THE VALUE OF FINANCIAL ADVISORS IN TURBULENT TIMES: AND BEYOND

In these unsettled economic times, investors may be legitimately asking themselves about the value that a financial advisor brings to the table or, conversely, whether they would be better off trying to invest on their own.


"We have been looking at that very question for a couple of years now," says Joanne De Laurentiis, president and CEO of the Investment Funds Institute of Canada (IFIC).


To find out whether people indeed do better with an advisor than they do without, IFIC consulted an existing Ipsos Reid study of 3,000 households that proved conclusively that yes, you are better off financially when you seek out and heed professional investing advice.


"In terms of experience of those households with advisors, they were in a better financial situation, they had a higher level of savings and investible assets;' she says.


"It basically cut across all demographic levels: If you were young, under 25 or over 65, if the household had an advisor they were in a better financial position:' she explains.


The same advisor-led improvement was found regardless of the , original income or wealth position of those using advisors to guide their savings and investments.


The study also found that advisor guided households also typically had more money saved in RRSPs, RESPs and even new investment vehicles such as the TFSA.


"These millions of advisor-client conversations, whether they be short or long, are really helping with the creation of a savings culture;' Ms. De Laurentiis says.

The IFIC study conducted by Ipsos Reid in 2010 also found that households with advisors were more confident about the future and more comfortable about investing generally. "So the conclusion from that study was that advised households do better than non-advised households:'


Financial advisors are proving more valuable to Canadians as in¬vestment products get more complicated and markets seem even more unpredictable than in prior years.


"The complexity of products, the fact that you are making financial decisions really throughout your life, [means investment strategy] is not just about retirement or buying a house;' says the IFIC president. "You pretty much make financial decisions all your life. When you are making those decisions you have to have thought about whether you are going to use credit or savings, whether you are overextending yourself, and it isn't something that most of us are really trained to do."


The decisions people are faced with and would do better making every day include whether to get in the market and what investment products to buy, what types of insurance to buy and how much to save for retirement to ensure that you do not outlive your savings.


IFIC statistics show that more than 85% of mutual funds are purchased through advisors, and annual surveys conducted for IFIC show that invest¬ors prefer to buy such funds through an advisor rather than selecting the best funds on their own.

IFIC's 2011 Canadian Investors' Perceptions of Mutual Funds and the Mutual Fund Industry 2011 study found that the accumulation of wealth does not precede the process of seeking out professional financial ad¬vice. More than one half of respondents had less than $25,000 to invest when they first sought out advice, and fully one-third had less than $10,000.


The survey also found that once mutual fund investors started working with an advisor, that relationship typically lasted 18 years and the relationship grew to including consultation in other financial areas such as budgeting and planning for the future.


Ian Russell, president and CEO of the Investment Industry Association of Canada, says that the upheavals in the markets and the deep and lasting recession in parts of the developed world have made it tougher on investors and made financial advisors and the advice they provide more valuable than ever.


''You really see the value of something when you really need it," Mr. Russell says. "We are in an environment where there is a great deal of uncertainty, investor angst and stress among all investors:'


"Investors have been impacted by low interest rates, stock markets that are far more turbulent and unpredictable than ever before and which have affected portfolio values. The ... unsettled environment is hitting Baby Boomers particularly hard as they are nearing retirement and are seeking safe and stable returns - exactly the opposite of what markets are delivering," Mr. Russell says.


"People traditionally would turn to things like government bonds and annuities, which are safe and secure and provide an income stream for them," he says.


"Of course, the returns on those products have really evaporated and that provides a challenge for them in finding adequate investment products.


"So people are being challenged to compensate for these lower returns by adjusting either their portfolio asset mix to generate higher returns or change your standard of living," he adds.


"These factors are all putting more pressure on Canadians and more and more people are turning to their financial advisors to cope with these unprecedented pressures."




Paul Brent
National Post
11/07/2011