According to research conducted by Vanguard Investments, a good advisor can add up to 3% to a client's net returns.
Vanguard says that advisors who use its Advisor's AlphaTM wealth management system focus on portfolio construction, behavioural coaching, asset location, and other relationship-oriented services, and by doing so they have been able to add about 3% in net returns for their clients.
In a research paper called Putting a Value on Your Value, Vanguard has quantified a number of ways that advisors assist clients. One of the biggest contributions an advisor can make is by being a good behavioural coach; if they help clients maintain a long-term perspective and a disciplined approach, Vanguard’s research suggests that advisors can add up to 1.50% in net returns.
Vanguard also says advisors can also add up to 1.31% by using cost-effective investments, up to 0.42% by using an asset allocation strategy, up to 0.47% by maintaining a proper allocation over time by rebalancing, and up to 0.41% by implementing a spending strategy that helps clients decide how best to draw down their portfolios.
"Partly the result of the Client Relationship Model reforms being implemented in Canada, greater fee transparency will make it even more important for advisors to successfully communicate their value – a value that, while real, is much easier to describe than define," comments Atul Tiwari, managing director of Vanguard Investments Canada. "This study attempts to define that value and make it more tangible."