How much is your advisor worth?
Are you considering working with a financial advisor, but not sure if it’s worth the cost?
The truth is that everyone’s financial situation is different and there is no one-size-fits-all answer. But studies have shown that working with a financial advisor can bring great value to your finances, especially if you are looking for personalized advice and guidance.
As you look through the table, you’ll see the benefits are expressed as a percentage. For example, a 1.00% benefit would mean that your overall financial well-being would improve by about 1.00% per year. For example, if your net worth were to typically increase from $1,000,000 to $1,100,000 without a financial advisor, working with an advisor might lead to your net worth increasing to $1,110,000 instead or $10,000 more. Expressed in this way, the benefits can be shown to compound year-over-year. Over 10 years, this benefit could accumulate to over $100,000 more!
At Gilbert Wealth, I offer these services, and more, to my clients to achieve their goals! I am regularly reviewing my technology, offerings, and practices to make sure my clients maximize their finances.
Summary of Advisor Value to Client Studies
Vanguard
Envestnet
Morningstar
Russell Investments
Behavioral Coaching
0.00% to >2.00%
–
–
–
Asset Allocation
–
0.50%
–
2.37%
Customized, Holistic Planning
–
0.50%
–
1.21%
Tax Planning
–
1.00%
–
1.22%
Spending Strategy
0.00% to 1.20%
–
0.92%
–
Asset Location
0.00% to 0.60%
–
0.23%
–
Portfolio Rebalancing
0.14%
0.30%
–
0.11%
Cost Effective Implementation
0.30%
0.61% to 0.67%
–
Not Included
Total Benefit
Up to or Greater than 3.00%
Around 3.00%
1.59%
4.91%
Source
Advisor’s Alpha, 2022
Capital Sigma: The Advisor Advantage, 2019
Alpha, Beta, and Now Gamma, 2013
Value of an Advisor, 2022
- The percentages listed are not guaranteed to materialize and the benefits will vary by client situation. For example, Tax Planning is a fantastic process for many clients, but it is more valuable to those with a high net worth and high income than those with moderate net worth and moderate income.
- The studies compare an optimal strategy to a hypothetical “base case” that an average person may implement. For example, in portfolio rebalancing, they might assume the base case is a portfolio that is never rebalanced. However, if you already rebalance regularly, the benefit of using an advisor for the purpose of rebalancing is diminished.
- You only have the potential to get this benefit by working with an advisor if they actually offer the service to you.
Guide to What the Strategies Entail
Behavioral Coaching
Behavioral Coaching is the benefit of having a trusted advisor to help you stick to your plans when times are hard and the plan is tested. Abandoning ship in the middle of a storm is rarely the right strategy and a good advisor can help you navigate the storm safely.
Asset Allocation
Asset allocation is the process by which you allocate your investable resources between the different types of investments available such as stocks, bonds, real estate, or cash as high-level examples. Asset allocation should reflect your unique goals, risk tolerance, and risk capacity.
Customized, Holistic Planning
Planning for your entire financial picture can help you optimize your financial strategies for your goals. Many people plan based on financial rules of thumb which are created for the masses. These rules of thumb may get you pointed in the right direction or give you benchmark but rarely does a client situation match up to the “sample” client used to create those rules of thumb. Customized planning looks at your unique goals and implements financial strategies to help you accomplish those goals. From investments, tax planning, estate planning, insurance planning, cash flow planning and more… your plan should reflect you and there is real benefit to that.
Tax Planning
Tax planning is a complex area that requires attention to each individuals unique tax situation not just in a single year but over their lifetime. A tax strategy also encompasses multiple areas of a clients financial life such as investment planning, income planning, savings strategies, healthcare costs, and more.
Spending Strategy
Your spending strategy entails identifying how much you need or want from your investments over the course of your lifetime to fund retirement, education, or other goals and creating a tax-efficient income plan that optimally meets those needs. It encompasses asset allocation, asset location, and tax planning.
Asset Location
Asset Location seeks to optimize your chosen investment mix among the various accounts you have available to you such as Pre-Tax Retirement accounts, Roth accounts, Taxable Investment accounts, and others given estimated returns of the assets and your unique tax situation.
Portfolio Rebalancing
Portfolio Rebalancing is the process of keeping your portfolio aligned to your target risk level over long periods of time. If your portfolio isn’t rebalanced over time, the highest returning assets (generally stocks) will take over more and more of your portfolio balance exposing you to higher volatility. Portfolio rebalancing can be time based (monthly, quarterly, annually) or threshhold based (plus or minus 5% of your target weight).
Cost Effective Implementation
Minimizing or eliminating unnecessary strategy implementation costs such as using lower cost funds when able, minimizing or eliminating high commission products, proper strategy selection to minimize changeover costs, etc.
What's Not Included in the Studies
These studies focus on areas that can be reasonably quantifiable. However, there are many other areas that a good financial advisor may add value that can provide more benefit to clients. These include discussions around estate plans, identifying appropriate savings rates, gifting strategies, charitable donation strategies, and not to mention the emotional benefits of being able to rely on a professional to navigate the complexity of planning!
Check out my Comprehensive List of Services for more topics I cover with my clients!
Ready to Learn More?
Schedule a meeting with Gilbert Wealth to see how I can add value to your financial situation!