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Emotions important metric for success of advice

Emotions important metric for success of advice

Investors consider emotional outcomes - such as confidence, behavioural coaching and a sense of accomplishment - to be important measures of the value of advice, a report has found.

Vanguard carried out research on a sample of 44,000 clients of its Personal Advisor Service, a hybrid financial advice service which currently only operates in the USA.

Respondents ranked 24 statements in terms of importance and satisfaction and many highly rated statements had a strong emotional component, such as "trust in the adviser" or "personal connection with the adviser", which were the two most highly rated.

Transparency and control also ranked highly, along with being reassured in down markets.

The report said: "Our results highlight the need for a broader advisory industry investment in value metrics. Assessing value for money for the investor must begin with a comprehensive measure of value.

"As the industry grows in scale and impact and the emphasis on investor value continues, additional data-driven benchmarks will be needed to evaluate adviser quality and efficacy.

"These metrics will have to extend beyond traditional portfolio outcomes to encompass broader financial goal attainment and emotional well-being."

The research also found that eight in 10 PAS investors who had a retirement goal had an 80 per cent or greater probability of achieving their objective.

Specifically, 76 per cent had a 90 per cent to 100 per cent probability, while another 4 per cent had a probability of between 80 per cent and 89 per cent.

The report said: "Such a high percentage of investors on track to achieve their retirement goal is certainly encouraging. However, in some cases, these investors may be over-prepared, living more modestly than they actually need to.

"This presents an opportunity for advisers to discuss a client’s current or desired standard of living and whether it might be possible to increase it."

The 20 per cent of investors with a retirement success probability of below 80 per cent tended to be near or at retirement age or had assets below what was needed to fund their expected standard of living.

In other cases, particularly among younger investors, financial planning information such as workplace retirement savings was not accurately reported to advisers.

The research also found that advice led to meaningful changes for most investors' portfolios, materially changing equity risk-taking for two-thirds of the sample, reducing cash holdings for nearly three in 10 investors, and eliminated home bias for more than 90 per cent.

damian.fantato@ft.com