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Getting Advice

Are Financial Advisors Worth the Investment?

Thanks to a number of recent national and international research studies, we can now give a scientific, evidence-based response to this question. And the answer is a definite "yes."

In a publication called The Value of Advice Report 2012, the Investment Funds Institute of Canada (IFIC) provides an overview of relevant research conducted in Canada, Australia and the United States.

In particular, it points to a ground-breaking scientific study by the Montréal-based Center for Interuniversity Research and Analysis on Organizations (CIRANO). Titled An Econometric Analysis of the Value of Advice in Canada, the study takes investigation into the value of financial advice to a new level by using econometric modelling* and a robust sample of Canadian households.

In their conclusion, the researchers say the evidence demonstrates convincingly that having a financial advisor contributes positively and significantly to the accumulation of financial wealth.
 
 

Key findings by the CIRANO study

 
 
 
  • Having a financial advisor helps people increase their wealth
  • The longer people have worked with a financial advisor, the more their investments have grown
  • After 15 years or more of working with a financial advisor, advised investors accumulate 2.7 times more in savings than comparable investors without advice
 
 
 
Source: An Econometric Analysis of the Value of Advice in Canada, by Claude Montmarquette, CIRANO, 2012
 
The researchers draw four main conclusions from their econometric analysis:
  1. Advice has a positive and significant impact on financial assets after factoring out the influence of close to 50 socio-economic, demographic and attitudinal variables that also affect individual financial assets;
  2. The positive effect of advice on wealth accumulation cannot be explained by asset performance alone: the greater savings discipline acquired through advice plays an important role;
  3. Advice positively impacts retirement readiness, even after factoring out the impact of a myriad of other variables;
  4. Having advice is an important contributor to levels of trust, satisfaction and confidence in financial advisors—a strong indicator of value.
 
The bottom line for Canadian families
 
With the health of the global economy in question and traditional pension plans under pressure, Canadians need to assume greater responsibility than ever for their future financial security. A small percentage of people have the knowledge and time to follow the market and make investment choices without the help of a financial advisor. For most investors, however, a mounting body of research evidence indicates that professional financial advice is vital to achieving the best possible investment results.
 
* Econometric modelling studies the statistical relationship between different variables, including causal relationships. It aims to isolate the impact of a specific variable when all others have been taken into account.

Reference: The Investment Funds Institute of Canada Value of Advice Report 2012
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