The value of financial advice: how much is it actually worth?

While professional financial advice comes at a cost, understanding the potential long-term benefits and value in terms of investment returns, tax savings, and safeguarding your financial future is crucial for determining if working with an advisor is a worthwhile investment.

We take a look into the real value of financial advice.

How much is financial advice worth?

Financial advice can make people, on average, nearly £48,000 better off in pensions and financial assets compared to those who don’t take advice, according to the International Longevity Centre (ILC).

In a report in 2017, the ILC discovered that Brits who took professional financial advice between 2001 and 2006 enjoyed an average increase in their assets of nearly £48,000 after 10 years, compared to those who took no advice.

The benefits of advice were particularly significant for those with less disposable income, and also for people who took advice more than once.

The combined benefits of financial advice over the 10-year period work out as approximately 2,400% greater than the initial cost of the advice.

The study, produced by the ILC with Royal London, compares people who took financial advice with those who didn’t, by looking at their assets, such as pensions, savings and investments over a decade.

The study also focused on people across two different wealth levels: ‘affluent’, those who feel they are comfortably well off and ‘just getting by’ - those whose income is similar to their outgoings.

Of the report’s many findings, perhaps the most interesting one was the revelation that the lower-income group benefitted from financial advice more than the affluent people did.

Learn more: can I have more than one financial adviser?

The less well-off get greater benefits from advice

The ILC report showed it wasn’t just wealthier individuals who benefitted from financial advice over a decade.

Rather, it appeared that those defined as ‘just getting by’ achieved a greater boost to their finances despite starting from a lower baseline.

Following financial advice, the average saver in the ‘just getting by’ group had their pension boosted over the decade by 24% (£35,054), compared to savers in the same group who didn’t receive advice.

In the ‘affluent’ group, this difference was more modest but still dramatic. Affluent people who took advice had £24,266 more after 10 years than their non-advised counterparts, an 11% boost.

The report also measured the effect on non-pension assets such as savings and investments.

Again, the benefits for those ‘just getting by’ were proportionally greater: a 35% boost to non-pension wealth compared to non-advised people.

The ‘affluent’ advised group enjoyed a 24% boost to non-pension wealth, compared to those who didn’t take advice.

In total, the ‘just getting by’ group who took advice ended up on average £50,332 richer than those without, while the ‘affluent’ advised group beat the non-advised group by some £43,353 overall.

This means that the average total benefit of financial advice over the 10 years was £47,706, with the bulk of this being pension pot growth.

Ongoing or follow-up advice adds more value

While the report confirmed a significant wealth boost from one-off advice, it also revealed the greater benefits of additional or ongoing advice.

It compared those who had taken advice only once (at the start of the decade) with those who had also received advice two years before the end of the decade.

Those who had taken additional advice were found to be, on average, 61% better off overall.

However, this figure must be treated with caution, as the report does not account for the initial wealth levels of these two groups.

It could simply be that those with more assets were more inclined to seek ongoing advice.

Nor does the study identify how much additional advice was taken over the decade, but these findings make it highly probable there is a measurable boost from taking extra advice.

How does the value of financial advice compare to the cost?

The majority of savers in the study took their financial advice from an independent financial adviser (IFA).

If individuals in a similar position were to seek that kind of advice now, what would it cost them?

It’s possible to estimate the cost of independent financial advice using Unbiased’s cost of advice tool.

Considering similar scenarios to the ILC report, we’ll assume the average person in the ‘just getting by’ group has a pension pot of around £140,000 and perhaps other savings, at the point of taking advice.

Meanwhile, the average ‘affluent’ person has a pension pot of roughly £230,000 and perhaps £50,000 or more in other liquid assets.

On this basis, savers could expect to pay between £1,700 and £2,500 for one-off independent advice on their financial position. As a rule of thumb, the more assets you have, the higher the fee will be.

The adviser’s fee would likely include a selection of the best products for your circumstances and goals, as well as all the execution required.

Assuming an average one-off advice fee of £2,000 and an average benefit of £47,706 over 10 years, based on the ILC report, financial advice would deliver value nearly 24 times the initial cost – or £4,570 net per year.

The long-term value of financial advice

The ILC study considers only a decade and measures the value of financial advice over that period.

In practice, the timescale of advice is much longer than this as savers build up their pension pots over the course of their careers, which could be 40 years or even longer.

Towards the end of their careers, these savers will be looking to secure their income over their retirement, which could be another 20 to 30 years.

Due to the nature of compound interest and investment growth, benefits from advice should snowball over time, resulting in a bigger contrast with the finances of those who took no advice.

Furthermore, the ILC report only considers the ‘saving up’ stage of financial planning – not what advisers call the ‘decumulation’ stage in which people draw on their pension pots.

It is particularly important to seek advice on how to take an income from your pension, since you are planning for the next two or three decades, and mistakes made at the start are not easily fixable.

The point of retirement and the decade immediately preceding it are among the most crucial times to seek financial advice.

Find out more about the many ways in which financial advice can help you.