Is financial advice worth the cost?

Many people ask, "Is financial advice worth the cost?" In this article, we will investigate the real value of financial advice.

Professional advice comes at a cost. However, understanding the long-term benefits is critical in determining if working with a financial advisor is a sound investment. The answer to is financial advice worth the cost depends on balancing these benefits against the fees involved.

How much can financial advice be worth?

On average, people who take financial advice, helping us answer the question, is financial advice worth the cost, can make up to £48,000 more in their pensions and other assets than those who do not. The International Longevity Centre (ILC) reports this finding.

In a 2017 report, the ILC found that individuals who received financial advice between 2001 and 2006 tended to build more wealth than those who did not. After 10 years, they enjoyed an average increase in their assets. The study compared this to the outcomes of those who did not take advice.

The benefits were particularly significant for those with less disposable income. Furthermore, the same applied to those who sought advice more than once.

Financial advice delivers combined benefits worth 2,400% more than its initial cost. This figure is based over ten years.

The ICL conducted the study in collaboration with Royal London. It compares those who took financial advice to those who did not. The study examines people's assets. These include pensions, savings, and investments, over ten years.

Also, the study focused on two different levels of wealth.

Affluent: Those who feel they are comfortable and well off.

Just Getting By: Those whose income and outgoings are similar.

The report revealed that individuals with lower incomes gained more from financial advice than those with higher incomes.

Do the less well-off get greater benefits from financial advice?

The report indicated that those classed as "just getting by" achieved a greater increase in finances. They achieved this increase despite starting at a lower level.

As such, the study by the ICL showed that it was not just the wealthier individuals who benefited from taking financial advice. For those on lower incomes, the evidence suggests that financial advice is worth the cost, even when starting with modest assets.

We compare the two different groups below.

Just getting by

With regards to pensions, the average saver increased their pension by 24% (£35,054) over a decade compared to those in the same group who did not take advice.

The report also examined non-pension assets, including savings and investments. In this area of savings, those who received financial advice achieved an average increase of 35% compared to those who did not.

Affluent

The difference in this group was slightly less pronounced. However, it was still statistically significant.

In regard to pensions, those who took advice were, on average, £24,266 better off over ten years than those who did not. Therefore, this represents an 11% boost.

As for non-pension assets, they experienced a 24% increase. Again, this was compared to those who did not receive financial advice.

Total savings for both groups

The "just getting by" group who took advice were £50,332 better off than those who did not. The "affluent" group who took advice were £43,353 better off than those who did not.

As a result, the average total benefit of taking financial advice was £47,706. The bulk of this growth was in pension pots, a strong indicator for anyone asking is financial advice worth the cost.

Does follow-up or ongoing financial advice add more value?

Besides the report showing a significant boost in wealth from one-off financial advice, The report also highlighted the benefits of ongoing advice, adding further weight to the argument of the question is financial advice worth the cost.

Over a decade, it compared those who only received financial advice at the start of the decade to those who received further advice two years before the end of the decade.

The report does not account for the initial wealth of the two groups. Those with more assets may have sought more advice. Nor does the report account for how much additional financial advice people sought over the decade.

However, although you must treat the figure with caution, the report indicates that those who sought ongoing advice were, on average, 61% better off than those who did not.

Comparing the value of financial advice to the cost

The majority of savers in the study took advice from an independent financial advisor.

For this article, we have estimated the cost of an IFA.

We will take a similar scenario to the ICL report.

In the "just getting by" group, the average pension pot is £140,000, and there may be other assets at the time of taking advice.

The "affluent" group has an average pension pot of £230,000 and £50,000 in liquid assets.

In these cases, the fee for one-off financial advice would be between £1700 and £2,500. Also, the fee is normally higher the more assets you have.

As such, for an average one-off fee of £2,000, the average benefit over ten years would be £47,706. This is based on the ICL report. In the end, these figures strongly suggest that financial advice is worth the cost, delivering twenty-four times the initial fee.

The long-term value of financial advice

The ICL report measures the value of financial advice over a decade. In reality, the timescale of financial advice is significantly longer. For example, savers build up their pension pots over a number of years. Sometimes, this can span the entire career, lasting forty years or more.

Towards the end of their careers, savers are looking to secure their income during retirement. This can be twenty years or more.

Due to the compounding effect of interest and investment growth, the benefits of financial advice can increase over time. Furthermore, this can increase the contrast between those who sought financial advice and those who did not.

Also, the report only considers the "saving up stage". The next stage, when people start drawing their pensions, is not considered. Over both the saving and withdrawal phases, the evidence points to financial advice being worth the cost in the long run; further answering the question of "Is financial advice worth the cost?"

The point of retirement and the preceding ten years are the most important time to seek financial advice.

How to take your pension is extremely important as you are planning for the next twenty or thirty years. As such, seeking financial advice is highly recommended, as Early mistakes are often difficult to correct.

Get expert advice

The ICL study shows that seeking advice can be financially beneficial over the long term. Even paying a small fee can lead to larger gains over time. This is particularly relevant for those with lower disposable income.

If you are wondering is financial advice worth the cost, the evidence suggests it is a smart way to grow and protect your assets for the future.

Let Regulated Advice match you with a financial advisor for expert advice.