Why financial advisers are invaluable during the pandemic

Business Advisory

October 28, 2021

Why financial advisers are invaluable during the pandemic

Getting expert advice about your finances is a key part of wealth creation and management.

But new research has found that the help of a financial adviser can be invaluable during unstable times like the pandemic.

Research conducted by Griffith University’s Business School found that between April and June 2020, the long-term clients of financial advisers were “better off, felt more informed, panicked less and painted good, long-term financial habits”.

Griffith Business School’s Dr Kirsten MacDonald said the report highlights the unsung role financial advisers play in crisis intervention.

“These professionals are frontline workers and not just during public crises like the pandemic. Clients generally needed more emotional support during a personal crisis,” she said.

According to Dr MacDonald, financial advisers gave clients the space to make decisions and reduced their mental load by providing secondary services like liaising with insurance companies or Centrelink.

“They know their clients really well because they’ve been advising them for a long time. These secondary services gave clients the space to grieve and heal,” she said.

Griffith University’s research found that advised clients were in a better financial and behavioural position to deal with stress and unprecedented events such as lockdowns, while also highlighting a “lack of preparedness” by those who attempted to self-manage their financial affairs.

“Despite the substantial personal and economic costs of the COVID-19 crisis, the silver lining for the financial advice profession (and their clients) is the apparent increase in recognition of non-advised consumers of the need to seek support and the advances made in terms of business practices regarding uptake of technology to provide access and efficiency,” the report read.

Advised clients 5.2% better off

Financial advisers not only support clients through difficult situations, they can help them come out of tough times in a better financial position.

The fourth annual Russell Investments Value of an Adviser Report found that advised clients benefitted with a 5.2 per cent boost to their portfolios after the onset of the pandemic.

The report highlights how behavioural coaching is one of the biggest and most beneficial roles financial advisers can play.

A common mistake non-advised investors made during the first wave of COVID-19, and the 2008–09 Global Financial Crisis, was to abandon their long-term investment strategies. By selling out during the dramatic market fall, they lost out on the gains made when the market recovered.

For example, from January 2000 to September 2020, $100 constantly invested in the Russell 3000 Index more than tripled in value. And those who chose to stay in cash during that period missed a cumulative return of nearly 250 per cent, based on the Russell 3000 Index.

Sometimes, staying the course is the right choice.

“It is easy to get caught up in the noise and focus on the short-term,” said Chris Pomaroff, a financial adviser at LDB Group.

“In Australia, by early March 2020, we had the first known case of community transmission and sadly reported the first death. Shortly after, the WHO officially declared COVID-19 a pandemic which was promptly followed by nationwide lockdowns.

“Suppose you took this opportunity to sell down your investments to cash and spent 12 months on the sidelines. Deciding to reinvest after finally regaining confidence from months of low-level community transmission, relaxed restrictions and the start of the nationwide vaccine rollout. How would your investments have fared compared to those who had remained invested?”

Unfortunately for some Australians, sitting out those 12 months would have resulted in a 9.38 per cent loss, compared to a 5 per cent gain for those who remained invested.

“For the ‘average’ Australian superannuation balance, that equates to over $108,000 in lost earnings over 10 years,” Mr Pomaroff said.