Wondering if Financial Advisors make a difference to the growth of assets?

22.02.2017
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Financial Advice

A new study confirms financial advisors deliver results for investors.

Two researchers from the Center for Interuniversity Research and Analysis of Organizations (CIRANO), working with survey data gathered by Ipsos-Reid in 2013, set out to measure the impact of financial advisors on asset growth. The study titled, The Gamma Factor and the Value of Financial Advice was released in the summer of 2016 and was most recently shared at a financial industry event in Toronto.

Who hires financial advisors?

Perhaps unsurprising, the research found that people with greater wealth and financial knowledge tend to hire financial advisors. Makes sense. These investors have more assets to protect and likely appreciate the complexity of investing. However, the research didn’t conclude that financial advice can only deliver robust results for the wealthy and knowledgeable investor. In fact, the research indicated that financial advisors could positively impact all types of investors.

What impact do financial advisors have on asset growth?

Understanding the impact that advisors have on asset growth and portfolio performance is difficult to measure accurately. It would require an understanding of how that same portfolio would perform without any investment advice-not possible in the real world. To determine the impact, the authors of the CIRANO study compared the portfolios of those with an advisor versus those without an advisor, and adjusted for nearly 50 socio-economic and attitudinal differences. The study found that those who worked with financial advisors accumulated “290% more assets after 15 years than comparable non-advised investors.”

What else contributes to asset growth alongside financial advice?

Asset growth is also a function of savings and staying the course. Among investors/households with an advisor, there was an annual savings rate of 10.75% compared to 6.7% for households without an advisor. Further, for those investors who did not drop their advisor between 2009 and 2013, their asset value increased by 26% compared to a loss of 34.2% for those who dropped their advisor.

Advice matters

The CIRANO research team has provided investors with important insight into the role of financial advisors and the impact on portfolio performance. While the researchers also raise a number of future research questions like understanding the role of financial literacy and asset mix on asset growth, their conclusion is clear: Advice matters.

 

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