Canadians who work with financial advisors have substantially higher levels of investable assets than non-advised Canadians, and invest in securities with more potential for growth, a new report by the Investment Funds Institute of Canada shows.

The Value of Advice, a report released by IFIC on Wednesday, analyzes a variety of independent, third party research on the role that financial advice plays in the Canadian retirement savings system. In the report, IFIC argues that the Canadian public policy debate about retirement savings has demonstrated a lack of understanding and appreciation of the value that advice brings to investors.

“Some of the reference works supporting stakeholder positions in this debate have systematically ignored or undervalued the advice component of private sector solutions for improving retirement savings in Canada,” the report says.

IFIC points to research comparing Canadians who work with advisors with those who do not. It finds that advised households have substantially higher investable assets than non-advised households across all levels of income and age groups. For example, households with income levels between $35,000 and $55,000 had nearly five times the level of investable assets as compared to non-advised households.

“Having advice is strongly associated with the accumulation of financial wealth regardless of income level or age of household,” the report says.

IFIC also finds that advisors effectively help individuals choose the right vehicles, plans and investment mixes to optimize outcomes for their unique circumstances. It finds that when individuals are investing without advice, they are largely driven by short-term biases, and often cycle between over-cautious and under-cautious tendencies. For example, one survey found that advised households had much greater exposure to market sensitive investments and much less exposure to conservative, fixed income investments than non-advised households, providing them with more opportunity for future investment growth.

Canadian households with advisors also utilize the available range of registered plans to a much greater extent than individuals without advisors, the report shows. For example, IFIC’s research shows that advised households have double the participation in RRSPs and TFSAs of households without advice.

“Canadians have been, and continue to be well served by financial advice and the advisors who provide it,” said Joanne De Laurentiis, IFIC president and chief executive officer. “We know that individuals choose, overwhelmingly, to seek the assistance of advisors when important life events occur and benefit financially when they do.”

Other findings in the report show that Canadians with advisors have a higher level of confidence in their future and a higher level of financial literacy than Canadians without advisors.

IFIC calls for policymakers to carefully consider the value of financial advice as they consider changes or reforms to the retirement savings system.

“Financial and investment advice is essential to the provision of individual choice and customized solutions for investors. It is a cornerstone of our current retail financial market,” the report says. “The importance of preserving a healthy advice industry should not be overlooked as we consider public policy reforms affecting the financial sector.”

IE