The 4% Annual Advice Premium

How much is financial advice worth?

One recent New Zealand survey suggests that individuals investors who receive professional financial advice in New Zealand enjoy returns that are four percent higher per year.

That may not sound like all that much, but when you compound those extra returns over a 20, 30 or 40 year investment horizon, it makes quite a difference to the investment outcome.

The New Zealand Financial Services Council recently surveyed 2,000 New Zealanders on their relationship with money and how it affects their decisions and wellbeing. The Financial Services Council is a non-profit member organisation and is the voice of the financial services sector in New Zealand.

One of the findings of the survey was that there was an average 4% annual increase in investment returns between those who took professional financial advice and those who didn’t.

To see how that additional percentage return grows over time in dollars and cents, CoreData modelled three scenarios for younger (age 25), middle-aged (age 40) and pre-retiree (age 55) investors based on the same starting balance, deposit and withdrawal each year.

This model shows that younger New Zealanders starting with a balance of $16,830 and depositing $2,500 every year would have earned an additional $1.5m on their investments by age 55 if they sought help and professional financial advice.

This significant growth is due to compounding returns which is where the interest earned each year is reinvested or added to the investment. This increases the amount of money saved each year and therefore the amount of interest earned in subsequent years.

The Money and You research report also found that New Zealanders who get financial advice on average have KiwiSaver balances over 50% bigger than those who don’t, are more likely to have insurance cover and have greater peace of mind and confidence in making financial decisions.

The current economic climate and the impact of Covid-19 on the economy and jobs only underscores the critical need for New Zealanders to seek professional financial advice.

Money and You confirms that far too many New Zealanders are not taking steps to get good advice. The research found that under 20% of New Zealanders get financial advice, while 40% don’t see any benefit in getting professional financial advice, and 75% don’t recognise the positive impact that financial stability has on their mental wellbeing.

Source: The Financial Services Council of New Zealand