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Economic uncertainty makes advice key to investors’ well-being
With inflation and interest rates sitting front-of-mind following a volatile 2022, many investors who feel they are knowledgeable about investment markets are turning to professional financial planners for advice in a bid to offset the uncertainty and anxiety created by higher living costs, a recent survey shows.
Schroders’ Global Investor Study 2022 found that 36 per cent of people in Australia (and 39 per cent globally) who classed themselves as expert or advanced in financial investment knowledge said they are more likely to speak with a financial adviser as interest rates rise. Meanwhile, 21 per cent of Australians with intermediate knowledge, and 40 per cent with beginner knowledge, indicated they are now more interested in consulting with a financial adviser to help deal with rising inflation.
Sam Hallinan (pictured), CEO at Schroders Australia, said Australian investors are feeling significant anxiety around their investment strategy, which highlights an important role for financial experts in helping to alleviate some of that discomfort.
“The link between mental health and financial health is an increasing focus for many, with 64 per cent of Australians believing the performance of their investments has a direct impact on their mental wellbeing,” Hallinan said, adding that the global average is lower at 58 per cent.
“Given that more Australians believe that investment performance is linked to mental wellbeing compared to the global average, the stakes are high,” he said. “This, more than anything else, highlights the importance of professional financial advice for financial and mental well-being.”
Shane Langham, a senior private wealth adviser with Sequoia Financial Group, said clients are more comfortable with the benefit of knowledge, or at least knowing where they can find that knowledge in difficult financial situations. That helps to make them overall less anxious, more balanced and better able to make rational financial decisions without emotions getting in the way.
“Having a game plan in place, before the fact, really does help to keep that balance even when things go the wrong way and as we all know this happens a lot in life,” Langham said.
“When you can talk to someone in plain English and ask any questions you want to know the answer to so you can make up your own mind, this makes a lot of difference to how comfortable you are.”
Link between advice and security
The Schroders study reflects other recent data showing feelings of trust, confidence and security matter a great deal to investors. A 2021 Vanguard survey of US retirement plan participants receiving financial advice found that 45 per cent of the perceived value of advice is associated with the emotional benefits of the relationship; the other 55 per cent is tied to the functional aspects, including portfolio value and financial value.
“Vanguard research found that advice provides meaningful portfolio, financial, and emotional value to participants, with the emotional component accounting for nearly half of total perceived value,” the survey said. “Participants cite feeling more confident, more in control of their finances, and more at ease having an expert they can trust among the most important reasons for enrolling in an advice service offered in their retirement plan.”
The negative effects of financial concerns on people’s well-being and relationships with friends or family were illustrated during the COVID-19 pandemic, when it was widely reported that many Australians experienced heightened stress and anxiety, particularly around issues of financial well-being, mental health and family relationships. Yet well over half of Australians still do not seek financial advice despite the benefits it apparently brings to their overall well-being.
According to a 2020 IOOF research paper titled “The True Value of Advice,” financial advice improves the financial well-being of people who receive it. Moreover, better financial well-being flows into better overall well-being, including improved mental and physical health and healthier relationships.
A 2019 report by Fidelity found that 85 per cent of Australians receiving advice believed it gave them greater peace of mind financially and 86.2 per cent believed it gave them greater control over their financial situation. One in two people with an advice relationship said their mental health had benefited.
