Canadian households with a financial advisor for 15 years or more accumulated 290% more assets than households who did not use the services of an advisor, according to a recent study by Montreal-based Centre for Interuniversity Research and Analysis of Organizations (CIRANO).
The study, entitled The gamma factor and the value of financial advice, was originally released this summer but was presented to financial services industry professionals on Monday at an event in Toronto organized by the Investment Funds Institute of Canada (IFIC). [IFIC was not involved in the production of this report.]
The 2016 study is based on data from a 2013 survey that was conducted by Ipsos-Reid.
There are two significant factors, which make up the “gamma factor” and can account for this difference in assets between those with advisors and those without, according to Dr. Claude Montmarquette, co-author of the study, president of CIRANO and professor emeritus at the Université de Montréal.
One factor is a higher rate of savings for those with an advisor. Canadians with an advisor had an annual rate of saving of 10.75% compared to non-advised Canadians whose annual rate of saving was 6.7%.
“If you have a financial advisor, you increase your savings rate and if you increase your savings rate, you increase your wealth,” said Montmarquette.
However, other factors are also involved such as an individual’s level of income and attained education, he noted.
The second factor that plays a role in the ability to increase the level of assets is the discipline investors have to stay in the market through both positive and negative cycles. While the research cannot make a statistical correlation as to an advisor’s effect on an investor’s ability to stay the course, Montmarquette’s own observation is that an advisor can play a role in this area: “A financial advisor will tell you it’s not time to sell.”
The 2016 study also found that Canadian households with advisors fared better than they did in a similar study in 2012 when those families saw their assets grow by 173%. However, these differences are partly attributed to a refinement in the report authors’ analytical technique and improved financial markets during the second study period.
The research also explores the consequences for families who dropped their advisor between 2009 and 2013 and compares them with families who maintained their relationship with an advisor within those years. The analysis showed that households who no longer used the services of an advisor lost 34.2% of their assets while those who maintained relationships with their advisors saw their level of assets increase by 26%.
The findings of this report provide insight to regulators as to the potential consequences of policies that would limit access to advice, according to an announcement released by IFIC.
The study surveyed 487 households with advisors and 1,097 households without advisors. The researchers were able to restrict their analysis to households that had proactively chosen an advisor as opposed to those who were pursued by an advisor in order to eliminate the result that households with advice are only wealthier because advisors have targeted those households.
A mathematical formula was applied to measure the impact that 50 socio-economic and attitudinal factors, such as income level, age, investment preferences and the use of a financial advisor, would have on growth in asset value.
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