Feeling successful in reaching an investment destination often comes down to the quality and comfort of the journey along the way. While the best financial advisers know that, it’s not widely appreciated how critical peace of mind is to good outcomes.
Anyone who has watched the financial advice business evolve over the years knows that a pivotal challenge is providing clients with good returns while giving them an experience that maximises their chances of getting to where they want to go.
In Dimensional’s recent survey of almost 19,000 investors– covering 436 advice firms in Australia and New Zealand, the US, the UK, Europe and Canada – we found that while clients always appreciate good returns, it is a sense of security or peace of mind that they rate most highly when engaging with and retaining a financial adviser.
Next on the list was knowledge of their personal financial situation, followed by a sense they are making progress towards their goals. In fourth position was investment returns.
Returns are, obviously, important, but if clients are unable to live with the plans designed for them, the whole purpose of the exercise is defeated.
Similarly, while investors surveyed believe the size of their nest eggs is key in preparing for life after full-time work, this takes a back seat to knowing how much they can afford to spend during retirement.
What’s more, these priorities – peace of mind, a sense of security, an understanding of their situation and confidence that they will be OK in retirement – extend across all demographics and all age groups.
Everyone is concerned about the possibility of a significant investment loss. Everyone worries about outliving their money. But what they value most is having a good sense of how much they can spend each year.
Something AI can’t replace
For Australian advice businesses concerned about their value proposition during this time of digital disruption, these findings should be reassuring. It is undeniable that artificial intelligence and digital technology are becoming vital for planning businesses. But it’s also true that nothing can replace the sense of comfort and confidence a good adviser can provide. An algorithm doesn’t make it any easier to sleep at night.
These survey findings match what we’ve seen at Dimensional, working alongside advice businesses in Australia and New Zealand for two decades. Those that succeed tend to be those that demonstrate to their clients the quality of the journey is as important as the destination.
People everywhere worry about the same things: Will my family and I be OK? Can I afford to live the life I want now and still be comfortable in retirement? What happens if I suffer a significant loss in a market downturn?
These financial issues are often complex and technical. They require a high level of professional skill from the adviser. But underlying them all are human issues about how to live with uncertainty and understanding what we can and can’t control.
The lesson from this is that good advice cannot become great advice without successfully addressing the need to reach a financial destination and the need to enjoy the journey along the way. This is what we mean by a great investment experience.
Nathan Krieger heads the Australian financial adviser services arm of Dimensional.