One
study asserts that these relationships can make a difference for investors.
Provided by Taylor McClish
What is a relationship with a financial advisor worth
to an investor? A 2019 study by
Vanguard, one of the world’s largest money managers, attempts to answer that
question.
Vanguard’s whitepaper concludes that when an investor works with an
advisor and receives professional investment advice, they may see a net
portfolio return about 3% higher over time.1
How did this study arrive at that conclusion? By comparing self-directed investor accounts to an
advisor model, Vanguard found that the potential return relative to the average
investor experience was higher for individuals who had financial advisors.1
Vanguard analyzed three key services that an advisor may provide:
portfolio construction, wealth management, and behavioral coaching. It
estimated that portfolio construction advice (e.g., asset allocation, asset
location) could add up to 1.2% in additional return, while wealth management
(e.g., rebalancing, drawdown strategies) may contribute over 1% in additional
return.1
The biggest opportunity to add value was in behavioral coaching, which
was estimated to be worth about 1.5% in additional return. Financial advisors
can use their insight to guide clients away from poor decisions, such as panic
selling or accepting excessive risk in a portfolio. Indeed, the greatest value
of a financial advisor may be in helping individuals adhere to an agreed-upon
financial and investment strategy.1
Of course, financial advisors can account for additional value not
studied by Vanguard, such as helping clients implement wealth protection
strategies, which protect against the financial consequences of loss of income,
and coordinating with other financial professionals on tax management and
estate planning.
You could argue that a financial advisor’s
independence adds qualitative value.
It should be noted that not all financial advisors are independent. Some are
basically employees of brokerages, and they may be encouraged to promote and
recommend certain investments of those brokerages to their clients.2
Both types of financial advisors may receive their compensation in two
ways: through transaction fees and through ongoing fees. Financial advisory
firms are required to disclose how their professionals are compensated with the
Securities and Exchange Commission (SEC).2
After years of working with a financial advisor, the value of a
relationship may be measured in both tangible and intangible ways. Many such
investors are grateful they are not “going it alone.”
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - advisors.vanguard.com/iwe/pdf/ISGQVAA.pdf
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2 - cnbc.com/2019/10/23/guide-to-choosing-the-right-financial-professional-for-you.html
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