If ever there was a time for professional investment advice, we’ve just seen it. The past couple of years have clarified just how crucial and valuable independent guidance and counsel are to the average investor.
It’s often said advisors take a holistic approach to helping investors navigate key milestones, including economic downturns. And survey after survey — not just by industry groups, but by third parties, including government regulators — point to the essential input qualified advisors have in helping Canadians form a financial plan, set their minds on the right track and follow through with their plan, in both good times and not-so-good times.
It’s true the recent market turmoil hit many investors’ pockets, but having a knowledgeable advisor makes investors better aware of how markets act and how investors should react based on their individual circumstances.
I have always believed an inquisitive investor – one who asks questions about financial planning, asset allocation and the pros and cons of different financial products – is an educated investor. Educated investors know market downturns are part of a cycle and take a long-term perspective about investments. Doing this not only makes investors more financially literate, but also gives them an active role in the direction of their financial futures.
For example, a report sponsored by the Canadian Securities Administrators last year states investors who use advisors are more likely to have a financial plan and are more likely to find the plan useful during an economic downturn.
Advisors help investors adopt good savings and investment habits that stay with them the rest of their lives. This provides them with greater opportunity for future investment growth, compared with those who don’t work with advisors. “Because of this, advised investors are better prepared to meet life’s contingencies than those without advice and are more confident about their future,” states a recent report on the Value of Advice by The Investment Funds Institute of Canada (IFIC).
A recent survey conducted by IPSOS-Reid notes households with an advisor have twice the rate of participation in RRSPs, TFSAs and RRIFs, than those without. Some “69% of advised households have RRSPs compared to only 29% of non-advised; and 27% of advised households have TFSAs compared to only 14% of non-advised,” according to the report. When it comes to RRIFs the difference is even more pronounced: 55% of advised households aged 65 years or older have RRIFs compared to only 18% of non-advised households.
This savings ethos is not only true in Canada, but is evident in other countries as well. An Australian IFSA/KPMG study conducted in 2009 shows investors who use an advisor have higher savings and make more contributions than those without one. This is due to a range of reasons, including advisors setting targets, helping avoid common behavioural mistakes such as trading too much and pushing for regular contributions.
Nor does it matter how much money a household has in the first place. Regardless of income and regardless of age, IPSOS-Reid found households that use advisors have substantial savings in both registered and non-registered investments and that asset levels for all are strongly correlated with the use of advice.
As the baby boom ages, and lives longer than ever before, there is an obvious emphasis on retirement and having “enough”. While that amount is subjective, having valuable financial advice over the years helps sets investors on a realistic path to the future.
Blake Goldring is chairman and CEO of AGF Management Ltd.
(10/01/10)