Advisers are behavioural coaches

The fourth annual Value of an Adviser Report by Russell Investments looked at how advisers have helped their clients deal with financial challenges and planning in 2024.

The value came from all aspects of advice from investing to tax planning, social security and estate planning, it found.

More than half of the benefit was derived from advisers’ ability to help people avoid knee jerk decisions amid market volatility and economic uncertainty. This included encouraging clients to remain disciplined and reweight portfolios as global share markets reached record highs – despite the temptation to chase more gains.

“In 2024, that has meant balancing the competing emotions triggered by strong investment returns and a cost of living crisis. Advisers have encouraged clients to stick to their long-term goals in this environment by providing both practical and emotional guidance that allows them to navigate the highs and lows of wealth generation,” the report says.

“Advisers are much more than financial experts – they are also behavioural coaches who help clients cope with the emotional rollercoaster of both investing and life itself,” says Neil Rogan, Russell Investments’ managing director, head of distribution in New Zealand and Australia.

The report adds the estimated benefit of an adviser’s guidance on asset allocation (1.4%) and behavioural coaching (3.3%).

“Advisers’ practical support also helped clients maintain strategies like dollar cost averaging as rising inflation cut into their disposable income,” Rogan says.

The report also highlights common challenges that advisers and their clients are facing in the current environment.

• Single retirees, particularly women, can be significantly underfunded for retirement and at risk of losing their homes at a later age.
• Younger generations have the advantage of using KiwiSaver to save for retirement as well as buying their first home through a KiwiSaver first-home withdrawal, but must grapple with the increased difficulty of buying a home and other costs such as student loan repayments.
• The so-called sandwich generation must juggle the needs of elderly parents with those of their own children – including sometimes paying for a parents’ aged care costs or forgoing an inheritance to do so.
• Older parents can be faced with “impatient inheritors” – adult children or grandchildren who want a bequest early.
• The so-called “bank of mum and dad” has grown rapidly as adult children ask parents to fund mortgage deposits. Alternatively, parents are allowing their offspring to live at home longer to save more or just to meet living expenses.
• Grandparents are more often pitching in to support grandchildren, by either providing childcare or funding private education.

Rogan said it’s important advisers continue to communicate their value to clients. “This report shows that if an adviser can help clients avoid common behavioural mistakes, they likely provide value above and beyond their fees,” he said.

Two Types

The report says there are generally two types of non-advised investors who can benefit from professional asset allocation advice.

The first are disengaged investors who consciously or unconsciously opt for the one-size-fits-all default options offered by their KiwiSaver provider for simplicity’s sake. By definition, these default options take limited – if any – account of the personal circumstances or needs of an individual.

The second are engaged investors who build their own portfolios but sometimes fail to consider all the potential risks – or even all the opportunities available to them. In both cases, professional advice could help them avoid lower gains.