The Value Of Advice For Retirees


Recent data from equity release adviser Key showed that retired households are losing 14% of their income a year to direct taxes.

With the costs of living continuing to increase and interest rates at all-time lows, pensioners are feeling the squeeze on the long-term value of their pension pots. Retired households on average received £12,102 from private pensions in 2020 compared with £14,756 previously while investment income dropped from £2,933 to £2,084.

The new figures also revealed that the average tax bill reaches £4,078 per annum, which is 13.9% of the average retired household’s pre-tax income of £31,674. This rises to 19% per annum for the wealthiest 10% of retired households, whose gross income is closer to £77,000.

Nathan Mead-Wellings, Director at Finura, comments:

“You cannot avoid paying tax, but you can help reduce the amount of tax you pay by making full use of allowances and reliefs available to you. It is something all clients can control and an area where we can make a quantifiable difference for those not yet making full use of their allowances and reliefs, today and on an ongoing basis.”

While the added expense of a financial adviser may be one that retirees are reluctant to incur, one study(1) by the International Longevity Centre found those who had an ongoing relationship with an adviser had pension wealth 50% greater than those who took one-off advice. Furthermore, Clients who took financial advice were, on average, £47,000 better off after 10 years – this was made up of a £31,000 uplift to pension wealth and a £16,000 increase to other financial assets.

New metrics and research findings by Morningstar also show that the interpersonal aspect of advice may have more impact on a person’s finances than anything else. This outlook favours services like behavioural coaching and personalised advice – both of which are core to the Finura approach to financial planning – versus traditional selling points like maximising returns and asset allocation. Gamma(2), a metric introduced by Morningstar, demonstrates that making sound financial planning decisions in five areas (asset allocation, withdrawal strategy, guaranteed income products, tax-efficient allocation, and portfolio optimisation) can generate 29% more income on average for a retiree.

This ‘added value’ is supported by the findings of Vanguard Asset Management’s ‘Adviser’s Alpha’ programme(3), a programme that enables advisers to put a number on the value they add for their Clients by demonstrating ‘the difference between the return that investors might achieve with an adviser versus the return they might have achieved on their own’.

The in-depth research project found that financial advisers typically add around 3% a year to their Clients’ investment returns, demonstrating that there is real value to be gained by seeking professional advice.

Quilter’s Adviser Delta, a part of their wider ‘Valued Adviser’ initiative, also looks at the ways in which Clients benefit by taking advice. These include Solution Enhancement – the extras a Client gets by implementing a solution with their adviser’s help – and Behavioural Coaching – the value an adviser adds by assisting Clients in making the right decisions to realise their financial goals. The research revealed that unadvised Clients, who currently build their own investment portfolios, would experience better financial outcomes if they took advice on how to hold their assets in the most appropriate way, invested in the way usually recommended by an adviser and built a trusted relationship with an adviser and followed their advice on an ongoing basis.

Nathan continues:

“We have all hired professionals to help us with various aspects of our lives – accountants, solicitors, personal trainers – and we believe a financial planner should be part of your team. It is up to us to demonstrate our value and show that the best firms long ago moved away from talking about products and investments to talking about how we can make a positive impact to people’s lives and lifestyles.

“As an example, empowering our Clients to understand all possible reliefs and allowances available, to then use them on an annual basis would allow two persons the opportunity to draw £58,740 per annum before paying any tax*. This is before Clients consider the additional tax reliefs that may be available to them by restructuring their current plan or investment portfolio.”

If you would like to open a conversation about your retirement plans, please contact us here.

*Based on using allowances for a couple with one non-income earning spouse in the 2021/2022 tax year.

(1) What it’s worth – Revisiting the value of Financial advice, December 2019
(2) Blanchett, David, and Kaplan, Paul. “Alpha, Beta, and Now…Gamma.” The Journal of Retirement 1, no. 2 (Oct. 31, 2013): 29–45.
(3) Vanguard Adviser’s Alpha: Putting a value on your value November 2014. Portfolio Metrix The Insider’s Guide to the Value of Advice June 2020.

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