One of the first questions that surely come to mind when someone is deciding to hire a financial planner or investment advisor is this: What is the value he or she is going to provide? Is it worth the fees that I am paying? Is there value in continuing to pay once the initial portfolio is setup?
Fortunately, Vanguard has developed the concept of "Advisor Alpha" [Alpha refer to excess returns that a portfolio or fund manager can, in theory, obtain by forecasting market trends or picking the right securities through fundamental or technical analysis. The key word is "in theory".... alas, this is a subject matter for a separate blog post!
For those who are interested in the details, I encourage you to read Vanguard's full definition. I will try to summarize the main highlights here:
Vanguard estimates advisors can add approx. 3% additional return to client portfolio, AFTER taking in to account taxes & fees you pay the advisor. Of course, this is an average number. For some, it will be more and for others, it might be less. If you would like to have a free consultation about how I can help you, please schedule a no-obligation appointment.
Advisors provide value in 3 primary ways.
- Portfolio construction: Advisors help identify a suitable asset allocation strategy for the client based on the "need", "ability" and "willingness" to take risk, cost-effective implementation of the strategy and locating these assets across available taxable and tax-deferred accounts.
- Wealth Management : Advisors also are able to execute periodic rebalancing of your portfolio taking in account the market performance. In addition, during the withdrawal phase [i.e. during retirement when client needs to withdraw money for ongoing expenses], advisors can recommend a withdrawal strategy that minimizes taxes and maintain appropriate risk exposure.
- Behavioral Coaching: Almost everyone can remember 2008 and 2009 when the global financial crisis led to extreme volatility in stock markets across the globe. Selling during the depths of the crisis would have proved a big mistake. Financial advisors help keep a long term perspective and help avoid impulse decisions, thereby improving the odds of success.
Want to know more? Set up your free consultation with me today.