A new study uncovers what’s behind the value of financial advice and growing wealth

While the value of financial advice is regularly touted by financial institutions, it can be difficult sometimes to truly gauge the benefits, given certain biases or the lack of conclusive facts.

A new 2016 study, however – backed by hard facts and substantial historical data – sheds a different light on the value of advice and offers a strong measure of its worth. The Center for Interuniversity Research and Analysis of Organizations (CIRANO) released its latest study on the subject, entitled The Gamma Factor and the Value of Financial Advice.¹ Here’s what you need to know.

Disciplines drive more wealth
After adjusting for almost 50 socioeconomic and attitudinal variations, the survey (conducted in 2014) found that those working with an advisor accumulated 290% (or 3.9 times) more assets after 15 years, compared to non-advised investors. Those findings are further pronounced when compared to a parallel survey conducted by the authors in 2010, which found that clients working with an advisor accumulated 173% more (or 2.74 times) over 15 years.

The study attributes the higher assets among participants over this period to the valuable practices that investors pick up through financial advice. The key drivers behind greater asset values for advised investors are:

• disciplined investing related to saving for the long-term
• diversification
• staying invested through market volatility

Collectively, these drivers are referred to as the “gamma factor”, and are the forces behind greater asset accumulation for advised investors.

The “gamma” factor focus
And that’s where the unique “gamma” aspect of the study comes in. Those disciplines imparted by advisors form a gamma factor that lies in contrast to what other studies tend to focus on; namely, the “alpha” factor, or the benefits relating to the goal of outperforming the market. The authors of this study say the alpha focus is misplaced and that there’s greater value in the long-term investment disciplines that financial advice brings.

Advice benefits all investors
What makes the CIRANO study even more significant is an added question (versus the previous 2010 survey) that limits the investigation to just investors who had proactively chosen their financial advisor. With the added data, the study found that over 85% of advised households chose their financial advisor and were not directly approached by one. In many ways, that insight reinforces the overall findings of the study and confirms the fundamental ability of advisors to help all types of investors, not only wealthy households.

Call our office today to learn more about how financial advice can help you meet your long-term goals.

 

¹ Center for Interuniversity Research and Analysis of Organizations (CIRANO), The Gamma Factor and the Value of Financial Advice, by Claude Montmarquette and Nathalie Viennot-Briot