Is It Worth the Money to Hire an Investment Manager?
There are many reasons and positives about engaging with a trustworthy financial planning firm to assist you with your lifestyle financial planning, but are investment managers worth having?
It is probably fair to say that the public generally think of ‘the stock market’ and investment returns when they think of financial planning. Investment management is but one aspect of the financial planning. Here we demonstrate that connecting with someone who understands your needs is worthwhile, cost effective and ultimately provides you with greater investment returns.
So given that there is so much information available on the internet and various finance books why shouldn’t someone look after their investments themselves? Are Investment Managers Worth Having? Here are some examples of why you should engage with a firm like Aisa Group for your investment management requirements.
Vanguard, one of the world’s largest investment companies, has been examining the ‘Is It Worth the Money to Hire a Financial Planner?’ question for 15 years. Based on research, analysis, and testing, Vanguard has concluded that, yes, there is a quantifiable increase in return from working with a financial advisor. Vanguard calls this advantage the Advisor’s ‘Alpha’. When certain best practices are followed, the result can be an Alpha in the 3 percent per year range.
Not everyone wants or needs an investment manager. About one-quarter of private investors are truly “self-directed,” according to Vanguard. These people truly enjoy investing. They obsessively follow the markets and enjoy creating and doing financial projections. Perhaps most importantly, these investors have an incredible level of discipline that prevents their emotions from intervening with their long-term investment strategy. They maybe retired ex investment managers or it may be their personality and nature that allows them to take emotional biases out of their investing methodology.
A separate 2019 study by Russell Investments, a large money management firm, came to a similar conclusion. Russell estimates a good financial planner can increase investor returns by 4.4 percent. Click here for the Russell report.
Our second example is a recent study published in the 3rd quarter of 2020 by an investment bank called Numis calculated that investing with an adviser generates an extra 2 per cent in annual returns after all fees.
The finding discredits an assumption that people may have about paying for advice: that net returns would end up the same as going solo. That, paying fees to an investment firm is the same amount that the firm would gain in performance. The simple assumption often made is that you will have the same gross returns.
To compare the returns of advised and non-advised investors, Numis analysed the real-world portfolios of pension clients at the biggest advised wealth manager tied financial advice firm in the UK – St.James Place – and then the largest DIY non advised investment platform counterpart – Hargreaves Lansdown.
To get most comparable data, Numis looked at pension segments over the past 10 years, as investors saving for their retirement would have similar objectives, rather than ISAs or general investment accounts which could be used for short-term purposes.
The research compared real world numbers over the past decade – i.e. what actual customers achieved at both firms after fees over that period. The study showed that on average, the advised client who invested £100,000 in June 2010 had £210,000 at the end of June 2020, while the average non advised client user who invested the same amount in 2010 would have had only £179,000 this year. “In this case it was a difference of 2 per cent per annum.
Numis conclusion was simple — “Ten years is a long period to look at, but pension investors are saving for 20, 30, 40 years, so if you carried on compounding the difference of 2 per cent per annum for a long time, we’re talking a massive difference in the amount that you have in retirement.”
“The message that the financial planning profession repeatedly relays is that there is a value in taking advice and Numis found that to be true.”
The third and final example is a November 2019 report, called ‘The Value of Financial Advice’, published by the International Longevity Centre and Royal London (the UK’s largest mutual insurance, pension and investment business).
It concluded that receiving professional financial planning advice between 2001 and 2006 resulted in a total boost to wealth (in pensions and financial assets) of £47,706 (after fees) in 2014/16, compared to those who didn’t receive any financial planning guidance.
Royal London Value of Advice Report
Conclusion-Are Investment Managers Worth Having?
We believe that the 2% per annum difference in the Numis study, 4.4% in the Russell Group study or the 3% in the Vanguard research are not just a small gaps. They are big enough and consistent enough gaps to actually say that there is an advantage to engaging with a financial planning firm.
So in answer to the question “Are Investment Managers Worth Having?” The answer is a definite “yes.”
Some readers’ finances have suddenly grown more complicated, either as the result of a new job or an inheritance, while others simply want personalised guidance that helps them increase their invested assets. Using a financial planning professional and investment manager works. If you have any questions related to information provided, please do not hesitate to contact us.Lee Hinton is an Associate Member of the Chartered Institute of Securities and Investments, holds the Cyprus Ministry of Finance Advanced Examination certificate and holds the UK Diploma in Financial Planning. Contact us on (+357) 26 951 600.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was republished on 12th November 2020.
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