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Where is the Value-add of an Investment Advisor?


When you are seeking professional advice, you are probably asking yourself how does this advisor add value for me? What is the value proposition? Am I getting my money's worth?

Vanguard tried to quantify the value of financial advice (Vanguard Research, March 2014) from the standpoint of a fee-based or fee-only investment advisor. Here's the summary: Advisors who use low cost index funds can potentially add "about 3%" alpha in net returns for the client. Here's how:

  • Cost-effective implementation (low expense ratios) = 45 bps.
  • Rebalancing annually = 35 bps.
  • Behavioral coaching (ie, stay the course) = 150 bps.
  • Asset allocation between taxable and tax-advantaged accounts = 0 to 75 bps.
  • Money withdrawal strategy (potential tax savings) = 0 to 75 bps.

The conclusion is that an independent investment advisor can add value significantly to clients by focusing in areas where advisors have some control.

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Comment   |  5¬†years, 9¬†months ago from Newport Beach, CA