Why financial advice matters

Bespoke, trusted advice from an expert financial planner can make a huge difference to achieving your key goals in retirement, yet many people are not accessing such expertise.

Most people long for the day they can retire comfortably and free up more time for the things they love. But despite the significant benefits of professional financial advice in helping to achieve that goal as early as possible, the vast majority of people don’t take advantage of it. Part of this advice gap comes from an enduring misconception such advice is only for the rich.

Research from the Financial Conduct Authority found that just 8% of UK adults receive regulated finance advice. A significant amount more have received a form of financial advice at some stage of their life, most notably when sourcing a mortgage to buy a house, but the longer-term nature of saving for retirement doesn’t inspire the same impulse to reach for the phone and seek the guidance and expertise of someone who is professionally trained in financial planning. 

Yet those who are among that 8% of people readily accessing financial advice are vocal about the substantial value it has provided for them. According to Mark Beioley, who has been an Ascot Lloyd client for the past seven years, professional financial advice has helped to provide a safety net for his family while providing cross-generational value.

“I can also say that because of the scheme we've been able to pass money down to both of our daughters which has enabled them each to put a deposit down on a house,” he says. “For me personally it enabled me to take my widowed mother on holiday to Jersey to her favourite hotel. 

“The enjoyment and pleasure she got from that holiday; you can't put a value on that. And it wouldn't have happened had we not gone along with the Ascot Lloyd plan. With Ascot Lloyd, we feel that for what we're paying we are getting complete value for money. That's important for us so that we can sleep at night, we can trust them, and we get reassurance on an ongoing basis.”

Quantifying the value

To assess the value of financial advice with all other factors held as constant as possible, the International Longevity Centre (ILC) conducted a detailed analysis of the government's annual Wealth and Assets Survey between 2001 and 2006. The research found that those who received professional financial advice during that period were, on average, nearly £50,000 better off a decade later than those who did not. This wealth uplift from advice comprised an extra £31,000 of pension wealth and more than £16,000 extra in non-pension financial wealth. 

Far from being the preserve of the rich, the research found that the wealth uplift from financial advice was more pronounced among those of more modest means. People assessed to be ‘affluent’ in the report had an extra 24% in financial wealth due to taking advice, but this grew further to 35% among those judged not to be affluent. Longevity was found to be an important factor in maximising returns, with people still taking advice at the end of the period having pension pots on average 50% higher than those who only took advice at the start of the period.

“It’s not just the advice you get initially, sitting you down to think about all the options and accessing cash flow modelling tools, but crucially the ongoing advice and changes that need to be made along the way which makes the real difference,” says Kevin Clare, Independent Financial Adviser, Ascot Lloyd. “People trust their financial adviser and often tell them more about their money and financial objectives than their close family. Legacy is a key example because a lot of people are not comfortable talking about death and inheritance with their kids. 

“However, reducing your inheritance tax liability to help protect your legacy for your loved ones requires quite a lot of foresight and planning. That’s just one area where a trusted financial adviser can prove extremely valuable. The trust element is absolutely imperative, and many of my clients also really value the reassurance especially when things might not be going as well.” 

Protecting your future

If financial advice was important in the past, it’s set to be even more vital in the future. According to a recent report by the Institute for Fiscal Studies, the wealth of today's pensioners, many of whom have benefited from rapid house price appreciation in recent decades, may be blinding younger people to the risk that they might not fare as well as their parents or grandparents.

A confluence of factors which could disadvantage future generations of pensioners has accumulated over the last 20 years, including the decline of defined benefit (final salary) pensions and the rise of defined contribution schemes to which many people don’t contribute sufficient amounts of their income. This is exacerbated by falling homeownership and, more recently, an abrupt end to the era of low interest rates as the Bank of England fights inflation. 

According to the IFS, nine in ten middle-earning private sector employees are saving less than what Lord Turner's Pensions Commission deemed appropriate to achieve a comfortable retirement, and fewer than one in five self-employed workers are saving into a pension at all. 

Even when people do save sufficient amounts, the introduction of pension freedoms means the burden of managing retirement pots falls to the individuals themselves The flexibility afforded to those with defined contribution pensions can be very positive when utilised well, but investments are complicated, and the average person lacks the knowledge and insight to ensure they are not spending too freely or too prudently in retirement.

“Some people say there's so much information available on the internet or they might have a family member or a friend that is reasonably financially savvy,” says Clare. “But financial advisors have much greater experience and will tailor their advice to your specific requirements. Titbits of advice you pick up in the pub tend to be framed around things that have gone well because people are less likely to talk about things that haven’t. They’re also not tailored to you. 

“A good financial adviser will not only help you create a robust long-term plan for achieving your desired lifestyle in retirement but will also be on hand to update and adapt that plan while providing steady guidance and reassurance as external circumstances change along the way. The value of financial advice just cannot be understated. It opens up a wealth of opportunities.”

If you’d like to learn more about the value of financial advice and how it could benefit you specifically, book a call with a trusted independent financial advisor from Ascot Lloyd.