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Are Financial Advisers Worth the Money? Experts Weigh In

by Ivy

Financial advisers play a crucial role in managing investments, particularly in volatile markets, but the question remains: Are they worth the cost? New data sheds light on the tangible benefits of financial advice, focusing on investors in self-managed super funds (SMSFs), and the outcomes suggest a mix of advantages and potential trade-offs.

Research from Investment Trends, compiled for The Weekend Australian, compares the experiences of advised versus unadvised investors. The findings reveal a notable difference in investment approaches between the two groups, particularly in terms of risk tolerance and asset allocation.

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Advised SMSF investors tend to adopt a more conservative approach, prioritizing sustainable income streams and a balanced mix of capital growth and risk management. In contrast, unadvised investors are more evenly split between focusing on maximizing capital growth and building a sustainable income stream. This pattern may indicate that those seeking advice are less confident in making these decisions independently, according to Dr. Irene Guiamatsia, head of research at Investment Trends.

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Asset allocation further distinguishes the two groups. Advised investors typically hold a higher proportion of their portfolios in managed funds, hybrids, and alternative investments—asset classes that are less accessible to unadvised investors who tend to favor direct shares.

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The shift toward private markets is another area where advisers are leading the charge. A report from global investment firm Hamilton Lane reveals that one-third of advisers plan to allocate 20% or more of their client portfolios to private markets in 2025. This trend is driven by a desire for diversification and enhanced long-term performance. Scott Thomas, head of private wealth at Hamilton Lane in Australia, notes that local private wealth clients are increasingly drawn to private markets, a reflection of the global shift toward this asset class.

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Despite these advantages, do advised investors achieve better returns? Over 2024, the results were mixed. Unadvised SMSF investors outperformed their advised counterparts, recording an average annual return of 10%, compared to 9% for advised investors. However, in 2023, advised investors came out ahead with an average return of 3.7%, compared to 3% for the unadvised. These short-term results suggest that while financial advice can help investors avoid knee-jerk reactions and stay steady during market fluctuations, it doesn’t necessarily guarantee better returns.

Further research from BT Financial highlights the benefits of advice during periods of volatility. Advised super members were better prepared to weather market corrections, with more consistent asset allocations, particularly during market downturns like the one seen during the COVID-19 pandemic. Non-advised clients, especially those nearing retirement, were more likely to react impulsively to short-term market changes.

Data from Colonial First State also supports the view that advised investors are better mentally prepared for market downturns. According to their research, 38% of advised super members in growth funds expect to experience a loss every three to five years, compared to just 26% of unadvised investors. This suggests that financial advisers help clients maintain a more realistic outlook on risk and returns.

Ultimately, while financial advisers help investors stay on course and make informed decisions, the real value may lie in their ability to manage risk and provide diversification rather than guaranteeing superior returns. Advisers appear to excel in helping clients navigate the complexities of market volatility, ensuring a steady hand when needed most, but whether the cost of advice results in better long-term returns remains an open question.

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