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Behaviour coaching, tax advice critical to boosting client returns

Russell Investments
By mbrownlee
18 July 2019 — 1 minute read

Behaviour coaching by financial advisers can add as much as 1.9 per cent in additional returns to client portfolios, while smart tax planning can add up to 1.2 per cent, according to a recent study.

A new research report compiled by global asset manager Russell Investments has found that advisers, on average, deliver value of 4.4 per cent to their clients beyond investment-only advice.

The report found that one of the most valuable services that advisers can provide clients is behaviour coaching.

“While there is strong evidence that portfolio value increases over time, investors can still feel compelled to react to short-term market volatility, which can undermine their long-term objectives,” the report said.

“A study of investor behaviour shows that many investors buy high and sell low. A trusted adviser, however, can guide investors to avoid these behavioural mistakes.”

The report estimated that the value of this guidance can add as much as 1.9 per cent in additional returns to an investor’s portfolios.

In a 34-year period from 1984 to 2018, Russell Investments found that the average stock fund investor’s inclination to chase past performance cost them 1.9 per cent annually.

“By working with an adviser, investors can become significantly greater than average. We believe an adviser’s ability to help clients stick to their long-term financial plan and skirt irrational, emotional decisions add this value,” the report said.

The report also found that having the technical expertise to help clients make the most of their tax circumstances and avoid any unexpected surprises at tax time is also a highly valuable service.

The report estimates that tax planning services can add between 0.9 of a percentage point and 1.2 per cent in additional returns to their client’s portfolio, depending on whether the client is in an accumulation or transition to retirement phase.

Some of the ways advisers can add value through tax planning advice, the report explained, are by keeping a close eye on tax returns, staying up to date on relevant tax changes that may impact financial circumstances, offering contribution strategies, optimising tax for non-superannuation assets, and working alongside tax and legal advisers to help clients meet their financial goals.

It also said they could consider tax-efficient strategies for investments such as lower turnover styles, tax minimisation overlays and centralised portfolio management.

The report also found that disciplined rebalancing and helping clients avoid unnecessary risk exposure was an important way of adding value.

“An adviser with a deep understanding of their client’s goals and risk tolerance is best placed to know how often rebalancing should occur and what adjustments best align to current lifestyle goals,” it said.

Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au


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