What is a relationship with a financial advisor worth to an investor? A 2019 study by Vanguard, one of the world’s largest money managers, attempts to answer that question.
Vanguard’s whitepaper concludes that when an investor worked with an advisor and received professional investment advice, they saw a net portfolio return about 3% higher over time.
How did this study arrive at that conclusion? By comparing self-directed investor accounts to an advisor model, Vanguard found that the potential return relative to the average investor experience was higher for individuals who had financial advisors.
Vanguard analyzed three key services that an advisor may provide: portfolio construction, wealth management, and behavioral coaching. It estimated that portfolio construction advice (e.g., asset allocation, asset location) could have added up to 1.2% in additional return, while wealth management (e.g., rebalancing, drawdown strategies) may have contributed over 1% in additional return.
The biggest opportunity to add value was in behavioral coaching, which was estimated to be worth about 1.5% in additional return. Financial advisors can use their insight to guide clients away from poor decisions, such as panic selling or accepting excessive risk in a portfolio. Indeed, the greatest value of a financial advisor may be in helping individuals adhere to an agreed-upon financial and investment strategy.
Past performance does not guarantee future results. This study provided feedback and estimates based on customer experience. The value of advice is not a guarantee of performance. Actual returns will fluctuate.
Of course, financial advisors can account for additional value not studied by Vanguard, such as helping clients implement wealth protection strategies, which protect against the financial consequences of loss of income, and coordinating with other financial professionals on tax management and estate strategies.
After years of working with a financial advisor, the value of a relationship may be measured in both tangible and intangible ways. Many such investors are grateful they are not “going it alone.”
“It took me quite a long time to develop a voice, and now that I have it, I am not going to be silent.”
– Madeleine Albright
Recipe of the Week
Good Ol’ Chicken Soup
- 1 whole chicken, about 3 lbs.
- 4 carrots, halved
- 4 stalks celery, halved
- ½ potato, diced
- 1 cup of green peas
- 1 large onion, halved
- Water to cover
- Salt and pepper, to taste
- 1 tsp. chicken bouillon granules (optional)
- Place chicken and vegetables (except potato and peas) in a large pot.
- Cover contents with cold water
- Heat and simmer, uncovered, skimming foam now and then.
- Once cooked to point where chicken easily falls off bone.
- Strain the broth, remove all other contents, and set aside.
- Season broth with bouillon, salt, and pepper.
- Add potatoes and peas to broth.
- Pick chicken meat from bones and return meat to broth.
- Chop vegetables and return to broth.
- Once potatoes and peas are fully cooked, serve.
Recipe adapted from allrecipes.com
Do You Know the Difference Between Taxable and Nontaxable Income?
- Gifts and inheritances.
- Child support payments.
- Welfare benefits.
- Damage awards for physical injury or sickness.
- Cash rebates from a dealer or manufacturer for an item you buy.
- Reimbursements for qualified adoption expenses.
A Two-Piece Ball or a Multi-Layer Ball?
Show Your Heart Some Love
- Manage your blood pressure. And get it checked regularly. Hypertension is often asymptomatic.
- Maintain a healthy weight. Being overweight or obese may increase disease risk.
- Eat well and exercise. Both are associated with lower incidence of heart disease.
- Drink less alcohol and don’t smoke. These habits are harmful to your cardiovascular health.
- Sleep well and reduce stress. Lower cortisol levels may reduce your risk.