I am often asked the question or some variation from a prospective client: Is your ongoing financial advisory fee really going to be worth it to us? The simple answer is I won’t know for sure until I dig into your planning. I do believe and have found that we provide a very real return on an investment in ongoing financial planning. This comes from the experience of my wife and I working with a fee-only comprehensive planner from before we were married and from my now working with over 150 families throughout my career.
There has been research into analyzing this question done by Vanguard on Advisor Alpha, Morningstar on Gamma return, and by Nick Murray in his book “Simple Wealth, Inevitable Wealth” I found the work that Vanguard regarding Advisor Alpha as summarized in the following report (Click Here) a helpful analysis. Their research is not an exact science, but suggests working with a financial advisor could add about 3% total return after fees to a client’s portfolio over time.
To break out the potential areas an advisor can help improve client’s returns over the long term. Vanguard’s research focused on three areas that advisors provide value:
- Portfolio Construction – Potential value add up to 1.20%
- Suitable asset allocation using broadly diversified funds
- Use of low cost funds
- Allocation between taxable and tax-advantaged accounts
- Total return versus income investing.
- Wealth Management – Potential value add up to 1.05%
- Regular rebalancing
- Spending strategy for portfolio withdrawals
- Behavioral – Potential value add up to 1.5%
- Advisor guidance to adhere to their financial plan.
What Vanguard’s research suggests is that working with a comprehensive financial advisor could add about 3% return to a client’s portfolio after fees. So rather than “saving” the advisors fee and doing on their own as the best alternative for prospective clients, they would be much better off “investing” in working with an advisor as a way to improve their long term returns.
Additional Potential Added Value
Vanguard’s research focused in on the value an advisor provides to an investment portfolio. There is also value a comprehensive advisor can provide in addition to the potential portfolio return. Areas that an advisor can provide additional value:
- Provide Peace of Mind
- Knowing you have a plan in place in-line with your values and your goals
- Insurance Planning
- Do you have the right amounts and types of insurance in place?
- Are you getting good value for the premiums you are paying?
- Cash Flow help
- A second set of eyes to identify areas that could be improved without impacting your lifestyle
- Optimizing debt and payment plans
- Ensuring cash surplus isn’t sitting on the sidelines and working for you
- Taking advantage of employer retirement plans
- Tax planning strategies
- How best to pay for college
- Ensuring estate plans are in place that passes your assets efficiently to the next generation
- Making the most of a business
- Career change guidance
- Best way to make donations to charity
- Help through financial transitions like death, divorce, retirement, inheritance, etc.
Can a financial advisor provide you enough value to justify their fee? It depends on the answers to three questions:
- Do you have the time, energy, interest, knowledge, and desire to research and investigate all areas of your finances to determine the best strategies to implement for your specific circumstances?
- Do you have the time, energy, interest, knowledge, and desire to implement and follow through on all of the identified strategies?
- Will you be able to hold yourself accountable and follow through over many years?
If you answer ‘no’ to all three questions, then it is worth considering that working with a comprehensive fee only financial advisor can improve your net worth over time even after paying the advisor’s fees.
Are you ready to create a plan for living the life you’ve always dreamed about? Contact us today to schedule your complimentary discovery meeting.
Your Guide to Financial Independence
Rick Epple, CFP(r)