Hello everyone, and welcome to the Retiring Canada Podcast. In today’s episode, we're going to discuss the value of retirement advice.
Specifically, we will cover:
The four types of value you should be receiving
The importance of ongoing planning and advice
Common strategies that add value
Two examples of retirees experiencing value
A few action items for you to consider
Today, I will be dissecting a research paper produced by Vanguard – one of the largest asset managers in the world. You can find a link to the research paper in the show notes.
What is the value of personal financial advice?
This question is crucial for financial advisors, investors, retirees, and the finance industry at large. By quantifying the value of their advice, financial advisors like myself can highlight the highest-value advice interventions and demonstrate value to clients, helping retain and attract more business.
I understand that this topic may seem self-serving, as financial advising is my profession. However, I believe this episode will provide value to both DIY retirement investors and those who already work with an advisor.
DIY investors can learn whether financial advice is right for them.
Advised investors can understand how advice adds value in excess of the fees charged by their advisor.
So let’s dive into the research and explore a few case studies to bring these concepts to life.
The Historical View of Financial Advice
Historically, the financial advice industry anchored its value on investment performance. In 2001, Vanguard introduced the concept of “Advisor’s Alpha,” which outlined how advisors could add value through relationship-oriented services beyond portfolio management.
Since then, Vanguard and other researchers have expanded these concepts, taking various approaches to defining and measuring the value that advisors deliver beyond investment performance alone.
The Four Types of Value Advisors Provide
The framework we will use highlights four types of value that advisors can provide:
Financial value: Investment returns are essential only as they help investors achieve specific financial objectives. Advisors engage in various financial planning strategies to ensure clients are prepared to face financial challenges.
Portfolio value: This value comes from building a diversified portfolio that generates better after-tax, risk-adjusted returns net of fees, aligned with the client’s risk tolerance.
Emotional value: This stems from helping clients achieve peace of mind and financial well-being.
Time value: This reflects the time saved by having an advisor manage tasks that individual investors might not have the time, willingness, or expertise to handle themselves.
Understanding Each Type of Value
Financial and Portfolio Value: These are often delivered through specific interventions and comprehensive financial planning. Examples include:
Risk assessment and asset allocation
Cost management
Tax-efficient strategies like optimizing registered accounts, tax-loss harvesting, and strategic RRIF drawdowns
Emotional and Time Value: These are delivered through the advisor's approach to explaining and implementing financial strategies. This can include:
Behavioral coaching to maintain long-term goals
Emotional support to instill confidence and reduce anxiety
Simplifying complex information into actionable steps, saving clients significant time
Advisors earn trust through consistent, proactive engagement and expertise, which are critical for long-term relationships.
Case Studies
Case 1: Pete & Kim
Pete (59) wants to retire next year when Kim (65) does. With $1.2 million in investments, they worry it may not be enough. An advisor's analysis shows that without changes, their baseline plan has a high chance of failure. Key advice interventions include:
Deferring Pete’s CPP until age 70 to enhance their long-term income security
Reallocating cash holdings and reducing home bias for better returns
Cutting spending by 10% to add flexibility and reduce risks
These strategies resulted in a 2.18% increase in their annual return, equivalent to an additional $644,000 in utility.
Case 2: Maria & Larry
Maria (70) and Larry (70) have $3.2 million from a lifetime of saving. They face minimal risk of running out of money. Their advisor encourages them to:
Increase spending to enjoy their retirement
Implement tax-smart withdrawal strategies to maximize their wealth
This reassurance and strategic adjustment provide Maria with peace of mind, allowing her to spend confidently without fear.
Conclusion
The value of a financial advisor is multifaceted, spanning financial, portfolio, emotional, and time value. Proactive advice, tailored planning, and trust are at the core of a successful advisor-client relationship.
All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.