At a time when the value of Financial Advisors continuously comes under fire with the focus mainly being on the cost of advice, it is refreshing to read about the upcoming report from The Vanguard Group Inc which demonstrates that a Financial Adviser can add about 3 Percentage Points’ worth of measurable alpha to a client’s Investment Portfolio over the long term. RDR and the FSB may want to take note of this intangible value on offer.
Vanguard’s report highlights these four broad categories of value-added benefits of financial advice:
- As a behavioral coach the advisor can get clients to stick to their benchmark asset allocation, as opposed to chasing short-term investment performance. This can add about 150 basis points of performance a year.
- Being tax savvy can also add value so the advisor can assist with asset location strategies (e.g use of tax efficient structures) which can add between 100 to 140 basis points.
- Advisors can also assist clients to keep costs low as they are often able to negotiate lower fees with product houses especially if the financial planning practice has scale. This can add another 50 basis points a year.
- Advisors also add value by regularly re-balancing client portfolios in line with benchmark asset allocation. This can be worth about 40 basis points a year.
With this in mind can clients afford not to use the services of a qualified Financial Advisor?
Kobus Kleyn (CFP) FPI, FIA, MDRT, FISA,SAIT