The Investment Funds Institute of Canada report shows that 81% of U.S. households owning mutual funds have a financial advisor; in Germany, roughly 80% of individual investors rely on financial advice for investment decisions.
A research report published by The Investment Funds Institute of Canada (IFIC) shows that majority of investors had a financial advisor to help them with their finances. Although the study was conducted in overseas markets, its findings are relevant in our market. The findings show the importance of the role of a financial advisor in the economy.
According to a 2011 Investor Education Fund report, five out of six Canadian investors are clients of financial advisors; in the United States, the Investment Company Institute (2010) reports that 81% of U.S. households owning mutual funds have a financial advisor; in Germany, roughly 80% of individual investors rely on financial advice for investment decisions (Bluethgen et al., 2008); and in the Netherlands, approximately 51% of households with an investment portfolio use financial advice (Kramer and Lensink, 2012).
IFIC initiated its study of the value of advice with the release of Value of Advice Reports in 2010 and 2011. Both reports examine the portfolio characteristics of advised and non-advised investors based on data from Ipsos Reid. The reports provide strong evidence of an empirical linkage between having advice and successfully accumulating financial assets.
In particular, the 2010 report demonstrates that:
· Advised households have substantially higher investible assets than non-advised households, regardless of household income level;
· Advisors help individuals choose the right vehicles and plans to optimize outcomes for their own unique circumstances; and
- Advisors help investors choose the right asset mix for their specific circumstances, objectives, and risk tolerance.
This report has demonstrated that there is a growing body of research, not only from Canada but also from abroad, which points to the clear benefits of obtaining financial advice. IFCI’s previous Value of Advice Reports have shown that advised households have substantially higher investible assets than non-advised households, regardless of household income level and age group.
Centre for Interuniversity Research and Analysis on Organizations (cirano) research
The researchers worked with a high-quality sample of 3,610 Canadian households – split into 1,785 advised households and 1,825 non-advised households.
The researchers draw four main conclusions from the econometric analysis, as described below:
Advice has a positive and significant impact on financial assets after factoring out the impact of close to 50 socio-economic, demographic and attitudinal variables that also affect individual financial assets.
The study reveals that the presence of a financial advisor, when engaged for periods of four to six years, seven to 14 years, and 15 or more years, contributes positively and significantly to the level of assets when the impact of all other variables is factored out. Moreover, the impact on the level of assets is more pronounced the longer the tenure of the advice relationship.
The positive effect of advice on wealth accumulation cannot be explained by asset performance alone: the greater savings discipline acquired through advice plays an important role.
The paper finds that advised households save at twice the rate of non-advised households (8.6% compared to 4.3%). The researchers developed a model to explain the savings rate among those who save. They found that financial advice increases the probability that a respondent saves and, among those who do save, it increases the rate of saving. According to these findings, a 1% increase in the ‘savings rate’ increases the level of assets by 8.7%.
Advice positively impacts retirement readiness, even after factoring out the impact of a myriad of other variables.
Having a financial advisor is found to have a strong and significantly positive effect on the level of retirement readiness. Controlling for all other explanatory variables, the researchers show that having a financial advisor increases the probability of a respondent declaring confidence in achieving a comfortable retirement by more than 13% relative to a non-advised respondent.
Having advice is an important contributor to levels of trust, satisfaction and confidence in financial advisors — a strong indicator of value.
Controlling for all other explanatory variables, the research study identified that an advised respondent had a 32% higher probability of declaring trust in financial advisors than a similar non-advised respondent.
The findings were published in a report titled The Value of Advice Report 2012
