The value of investment advice

By BLAKE C. GOLDRING

If ever there was a time for professional investment advice, the past couple of years have clarified just how crucial and valuable independent guidance and counsel are to the average investor.

It’s often been said that advisors take a holistic approach to helping investors navigate key milestones of their lives, including economic downturns. And survey after survey – not just by industry groups but by third parties, including government regulators – point to the essential input qualified advisors have in helping Canadians form a financial plan, set their minds on the right track and follow through with their plan, in both good times and not-so-good times.

It’s true that the recent market turmoil hit many investors’ pockets, but having a knowledgeable advisor makes investors more aware of how markets act and how investors should react based on their own individual circumstances.

I have always believed that an inquisitive investor is an educated investor – one who is not afraid to ask questions about financial planning, asset allocation and the pros and cons of different financial products. Educated investors know that market downturns are part of a cycle and take a long-term perspective for their investments. Doing so not only makes investors more financially literate, but also gives them an active role in the direction of their financial future.

For example, a report sponsored by the Canadian Securities Administrators last year states that investors who use advisors are more likely to have a financial plan and are more likely to find the plan useful during an economic downturn.

A major point to having an advisor is that they help investors adopt good savings and investment lifestyles that will stick with them the rest of their lives, providing them with greater opportunity for future investment growth than those without advisors.

“Because of this, advised investors are better prepared to meet life’s contingencies than those without advice and are more confident about their future,” states a recent report on the Value of Advice by The Investment Funds Institute of Canada (IFIC).

A recent survey conducted by IPSOS-Reid notes that households with an advisor have twice the rate of participation in RRSPs, TFSAs and RRIFs, than those without advice. Some “69 per cent of advised households have RRSPs compared to only 29 per cent of non-advised; and 27 per cent of advised households have TFSAs compared to only 14 per cent of non-advised.”

When it comes to RRIFs the difference is even more pronounced: 55 per cent of advised households aged 65 years or older have RRIFs compared to only 18 per cent of non-advised households.

This savings ethos is not only true in Canada, but is evident in other countries as well. An Australian IFSA/KPMG study conducted in 2009 shows that investors who use an advisor have higher savings and make more contributions than those without one. This is due to a range of reasons, including advisors setting targets, helping avoid common behavioural mistakes such as trading too much and pushing for regular contributions.

Nor does it matter how much money a household has in the first place. Regardless of income and regardless of age, IPSOS-Reid found that homes that use advisors have substantial savings in both registered and non-registered investments and that asset levels for all are strongly correlated with the use of advice.

As the baby boom generation ages and lives longer than ever before, there is an obvious emphasis on retirement and having “enough”.

While that amount is subjective, having valuable financial advice over the years helps sets investors on a realistic path to the future.

Blake C. Goldring is Chairman and CEO of AGF Management Limited, one of Canada’s premier investment solutions firms with offices across Canada and subsidiaries around the world.  With approximately $43 billion in total assets under management, AGF services more than one million investors.

 

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