Financial advice good for the economy

In fact, the report suggests, households using an advisor are more disciplined and accumulate higher levels of savings than households without an advisor. As a result, an increase in the number of households depending upon the services of an advisor could boost the Canadian economy by more than $2 billion by 2060.

The report, the research for which was undertaken at the request of the Investment Funds Institute of Canada (IFIC), looks at three types of households: active traders that don’t have a financial planner; non-advised families; and households that use a financial advisor.

The research then examined the non-advised households and hypothesized about the impact on Canada’s economy and aggregate savings if 10% of those households begin using an advisor.

“If you’re a macroeconomist, you know that the [Canadian] economy in the short term is driven by consumer spending or exports driven by U.S. consumer spending,” says Pedro Antunes, the Conference Board’s deputy chief economist. “If you have higher savings, the first thought that people have is that will be negative for the economy.”

Although that may be true for the first few years, a rise in savings tends to have a direct link to private capital investment, according to the report. That, in turn, facilitates investing in the domestic economy. (The report suggests that at least a portion of the additional savings will be invested in Canada. And this investment, over time, helps to increase economic potential, which translates into additional profits, wages and tax revenue.)

“In four or five years, we have an impact that goes from negative to positive,” Antunes says. “Our findings suggest there is a pretty good link between increasing savings and the benefit to the domestic economy.”

The report also looks at the repercussions of Canadians not saving enough for retirement, Antunes says: “If you go to the Canada Revenue Agency, you can see a good proportion of the population isn’t saving at all, and a good proportion is saving – but not enough. There is justification for doing something to improve retirement savings.”

Although investors who have financial advisors don’t necessarily beat the market, the broader issue is that people are saving more, in general, when they receive advice, Antunes says: “If your return is a little less, you’re still putting more and more away. The better a person’s financial literacy and the clearer the information, the better for all involved.”

Overall, he adds, there is a 2%-3% increase in the aggregate savings rate for advised households vs non-advised households.

These results are no surprise to Dan Hallett, vice president and principal with Oakville, Ont.-based HighView Financial Group in Windsor, Ont. There’s no question, Hallett says, that investors who deal with advisors tend to save more proportionately than investors who don’t – and having third-party accountability with somebody who checks in with the investor on a periodic basis and who promotes good financial behaviour is a good thing.

“That’s where a lot of the value-added from financial advice comes from,” Hallett says. “It’s not a pure investment performance point of view; it’s bringing that discipline to planning for retirement in the future and having that positive impact on behaviour.”

Hallett also agrees with the Conference Board report’s assertion that this activity has an impact on the economy as a whole. “If you have a larger proportion of the population in better financial health, with more disposable income,” he says, “and with consumption being a big component of economic input, it’s not unreasonable to think there’s some upshot from a higher-level economic point of view.”

IFIC, in addition to working with the Conference Board on the report, has done its own research on the topic. Joanne De Laurentiis, IFIC’s president and CEO, says advice provides meaningful value to Canadians that benefits them throughout their investing lifetimes, such as the early adoption of a savings and investment culture, the avoidance of common behavioural investment errors and the value of developing and following a financial plan.

“Advisors help individuals navigate through a wide array of financial products, vehicles and plans,” she says, “to arrive at solutions that fit their individual goals and are tax-efficient and utilize the right asset mix for their circumstances and risk tolerance. These findings have been corroborated by numerous academics and think-tanks.”

The new era of investor disclosure, De Laurentiis adds, which will start with the introduction of cost and performance reporting requirements in 2016 as part of the second phase of the client relationship model, also will lead to better conversations between advisors and their clients and give rise to fully informed investor behaviour and decision-making.IE

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