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Ken F

Vanguard Research Quantifies The Value Of Advice

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I know there is a lot of bashing of financial product salespeople and rightfully so. But there are some advisors that can add value to individual investors. In my 20 years of guiding investors, I have seen almost every mistake that can be made with regards to investing. Learning from those mistakes can save new investors a lot of grief and hard earned capital. Finding the right advisor to work with could add 3% in returns via Vanguard research.

 

I'm glad that Vanguard sees value in working with the right advisors. I think I could add a few bullet points to the list but will leave in be.

 

Ken

 

https://pressroom.vanguard.com/press_release/Vanguard_Research_Quantifies_the_Value_of_Advice_3.10.2014.html

 

Calculating how much an advisor can add in net returns is based largely on their approach to five wealth management principles. Although the exact amount may vary depending on client circumstances and implementation, an advisor can add value by:

  • Being an effective behavioral coach. Helping clients maintain a long-term perspective and a disciplined approach is arguably one of the most important elements of financial advice. (Potential value add: up to 1.50%.)
  • Applying an asset location strategy. The allocation of assets between taxable and tax-advantaged accounts is one tool an advisor can employ that can add value each year. (Potential value add: from 0% to 0.75%.)
  • Employing cost-effective investments. This critical component of every advisor’s tool kit is based on simple math: Gross return less costs equals net return. (Potential value add: up to 0.45%.)
  • Maintaining the proper allocation through rebalancing. Over time, as its investments produce various returns, a portfolio will likely drift from its target allocation. An advisor can add value by ensuring the portfolio’s risk/return characteristics stay consistent with a client’s preferences. (Potential value add: up to 0.35%.)
  • Implementing a spending strategy. As the retiree population grows, an advisor can help clients make important decisions about how to spend from their portfolios. (Potential value add: up to 0.70%.)

 

How an advisor approaches two additional principles, asset allocation and total return versus income investing, can also add value, but are too unique to each investor to quantify.

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Thanks Ken

 

I just went through a major overall of my portfolio and I talked to a Certified Financial Planner (CFP)! Yes I did, but I did not have to pay for his services. Because I am a Admiral investor with Vanguard, I got his advice for free. There are different levels of advice depending how much you have invested with Vanguard, obviously.

What he did was to capture an investment loss so I could report that on my taxes for this year. I would not have known that without his advice. But everything else was what I was going to do anyway, reduce my value tilt, reduce my equity exposure to 30%, increased my fixed accounts to 70% and combine and reduce the sheer number of funds and bond holdings, just to simplify.

 

Have a great day,

Steve

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