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Does financial advice really leave you better off?

New report purports to show people who receive professional financial advice end up £40,000 better off on average.

Does financial advice really leave you better off?

A new report from an independent think tank has indicated that those who received financial advice in the 2001-2007 period were on average £40,000 better off than their unadvised counterparts by 2012-14. 

The report, carried out by the International Longevity Centre in conjunction with Royal London, examined the influence of financial advice on two groups, categorised as 'affluent' and 'just getting by' investors.

The 'affluent but advised' accumulated on average £12,363 (17%) more in liquid assets than the affluent non-advised group, and £30,882 (16%) more in pension wealth.

Consumers characterised as 'just getting by but advised' accumulated on average £14,036 more in liquid assets than non-advised peers, and £25,859 more in pension wealth.

The findings were based on data from the Wealth and Assets Survey, the largest representative survey of individual and household assets in Britain. 

Advice also led to greater savings and equity investment levels among both groups, while nine out of 10 were happy with the advice they received.

The report concluded that trust and financial capability were the two biggest drivers of seeking advice.

It subsequently recommended that employers should support employees through their auto-enrolment into pension schemes by offering some advice, and suggested that a minimum level of guidance should be compulsory before peole could access their pension pots.

Royal London director of policy Steve Webb said: 'This powerful research shows for the first time the very real return to obtaining expert financial advice.

'What is most striking is that the proportionate impact is largest for those on more modest incomes. Financial advice need not be the preserve of the better off but can make a real difference to the quality of life in retirement of people on lower incomes as well.

'The evidence shows that when people take advice they are overwhelmingly satisfied and benefit as a result. More needs therefore to be done to overcome the barriers to advice.'

Cost versus benefit

Previous research by Vanguard, the US index-tracking fund giant, has calculated that the or value added by financial advisers can boost investors' returns by up to 3% a year.

While financial advisers may not be better than private investors at picking investments, their role in defining strategy and goals, providing the discipline for individuals to stick to a plan and tax planning are seen as strengths.

However, many people baulk at the cost of using a financial adviser. After a free initial meeting, the typical adviser will charge a fee for a one-off project, such as consolidating a person's pension schemes, that can cost between several hundred and several thousand pounds.

Ongoing professional advice will on average cost £150 an hour with adviser fees ranging between £75 and £350 an hour, according to figures.

Financial advisers used to earn commission from recommending financial products and investments, giving the public the impression that advice was 'free'. Commission payments were scrapped at the end of 2012 by the Financial Services Authority, the predecessor to the current City regulator, the Financial Conduct Authority.

This left people having to pay for their own financial advice. Many decided to go on their own, hence the growth in the numbers of 'DIY' investors using fund supermarkets and online stock brokers such as Hargreaves Lansdown, Alliance Trust Savings, Tilney Bestinvest, Barclays Stockbrokers and Selftrade.

1 comment so far. Why not have your say?

Jon Snow

Jul 17, 2017 at 01:44

The headline sums it up rather well -

"New report purports to show people who receive professional financial advice end up £40,000 better off on average."

No point in reading further.

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