People do measurably better with a financial advisor than without one.

Go Figure…!

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Help WantedJust today, I woke up to a newscast that informed us of the resignation of a prominent political figure in our area. I suppose that were I more politically “plugged in”, I might have seen this coming and been less surprised by this development. However, not to be left out of any controversial news item, a “plugged-in-to-the-max” person that I know  jumped all over the news and soon made his feelings evident to the world. OK, maybe that’s a bit of an exaggeration. He simply posted his sentiments – a parting shot, if you will – on an obscure electronic forum that upholds the finest standards of decorum and fine taste…FaceBook.

Some time after his post, he asked me for my thoughts, and I suggested that perhaps a milder, more diplomatic response may have been in order. You see, he’s likely destined to become famous (or notorious…I haven’t decided which yet, but he will be one of these!) through his involvement in politics and government issues, and starting to make enemies before even embarking on his career seems just, well, a little reckless.

Part of my counsel – tempered by my years – was to recognize how easy it is to give in to the temptation to criticize someone when you haven’t walked in his shoes. My young friend’s response was that I really didn’t know what I was talking about.

Go figure.

As someone who has made his living for the past 27 years (4 months, 25 days, but who’s counting) providing sage counsel (to be said as you stroke your greying beard), I’ve faced my share of advice rejected. But the results of an interesting study were just published by ADVOCIS, The Financial Advisors Association of Canada.

The research, released by Professor Claude Montmarquette and Nathalie Viennot-Briot of the Quebec-based CIRANO research organization, explored the relative impact of financial advice on households in Canada. As part of their methodology, the researchers segmented households into two groups: those that indicated they had received financial advice (termed “advised”) and those who hadn’t (“non-advised”). From there, they took the latter group and conducted a further segmentation into two groups: those who didn’t receive advice because they felt capable of managing their own investments (termed “traders”) and the remainder (termed “passive non-advised”).

I’d like to highlight some of the key findings.

First, advice has a positive and significant impact on wealth accumulation. In fact, Advised Households had 4.2 times the median assets of Non-advised Households. Another interesting finding was that the longer an Advised Household had been working with an advisor, the more assets they had when compared to a Passive Non-advised Household that was identical in all other respects.

Working with an advisor for 4-6 years showed 58% more assets than the Passive Non-advised home; having an advisor for 7-14 years saw that number grow to 99% more assets, and beyond 14 years saw Advised Households accumulate 173% more assets than their Passive Non-advised counterpart.

Go figure.

Having a financial advisor contributes positively and signficantly to the accumulation of financial wealth.

Next, Advised Households tended to save more – twice as much, in fact – than Passive Non-advised homes (8.6% v. 4.3%). It’s interesting to note, however, that the “Traders” (non-advised DIY’ers) had the highest savings rate at 10.4%. So it appears that working with an advisor heightens people’s awareness and need to save. The “traders” already had this figured out.

Other findings from the study linked the presence of financial advice to the “retirement readiness” of respondents. No real surprise there, I suppose, but this last result was a bit paradoxical: people who worked with an advisor tended to rank their “trust level” in their advisor as high. Lower “trustworthiness” scores came from people who didn’t receive advice.

As I interpret this last one, it’s comforting to know that the people who accept advice are more comfortable with the trust they have in financial advisors than people who don’t use a financial advisor. You would think that, if financial advisors weren’t doing a good job of helping their clients live and prepare better, it would be those receiving the advice that would lack confidence and trust in the one providing the advice. This tells me that, in general, financial advisors are doing an OK job (still with lots of room for improvement) and at the end of the day, their clients are doing much better WITH them than WITHOUT them.

Go figure.

Give yourself an unfair advantage. If you’re feeling even a little lost in the sea of financial products, strategies and “noise”, talk to a close friend who you know is financially successful, and get an introduction to his or her trusted advisor. Interview them for their philosophy and to evaluate the personal chemistry that they share with you. More often than not, you’ll do much better WITH them than continuing on your own.

Send us your story of how your advisor is helping you, or on the other hand, how you are doing on your own. We’d love to hear from you!