The researchers collected survey data from 3610 working-age Canadian households. They asked many questions related to income, savings, and financial advisors. Among their conclusions was the following:
“Controlling for multiple factors ... Those with 15 years or more [with a financial advisor] will have 173% more assets than if they did not have a financial advisor.”The study’s authors offer the following thoughts on this conclusion:
“This amount is too large to be explained simply by better stock picking. One highly plausible explanation of this finding comes from the greater savings that is associated with having a financial advisor and other appropriate advice.”Despite the fact that this 173% figure seems like conclusive proof that advisors give great value in helping their clients save and grow their money, I think there is a better explanation related to the question from the opening paragraph.
I went through the survey questions in Appendix B of the report to confirm that the researchers didn’t ask any questions about how much money advised people had before they took on an advisor or how much money non-advised people had in the past. So, previous wealth could not be part of the controlling factors. At least part of this 173% edge for advised people must come from advisors seeking out clients who already have significant assets.
Another problem is that an advisor-client relationship is more likely to sour if the client fails to save much. So, looking at people who have had an advisor for 15 years will create a large survivorship bias when you try to measure whether an advisor helps people save more money. It could be that advisors help people save more money, but it could also be that advisors dump clients who don’t save enough money.
When it comes to controversial research, it’s common for critics to focus on small problems and blow them out of proportion to unfairly discredit the work. However, in this case, the bias caused by the need for advisors to find clients with significant assets (and avoid those with little money) is potentially large enough to completely swamp the finding of a 173% edge in savings for people working with an advisor for 15 or more years. This paper adds next to nothing to the question of whether financial advisors help their clients.