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Financial advisory can an ambiguous industry, therefore you may not receive the same value from your professional financial advisor as your neighbor. The difference can sometimes be staggering. In addition, the industry has gone through tremendous changes over the last ten years or so.

Like many other industries, technology advancement, service model and data have reshaped the financial service industry. It’s however quite unfortunate that some advisors find it hard adapting to these changes. This often results in some advisors trying to justify their fees and charges using creative financial jargon.

With that in mind, how do you evaluate the value you’re getting from your professional financial advisor?

A prominent money manager did a study and tried to answer this question in one of their whitepapers. The general conclusion from the paper was that if an investor uses a financial advisor to help with their investment decisions, they are likely to experience a 3% increase in the return on investment.

How Was the 3% Derived?

The money manager compared self-directed investors with those using a financial advisor – they noticed that investors who were backed by professional advisors generally had higher returns.

The paper focused on the main services which are offered by most advisors, i.e. wealth management, portfolio construction and behavioral coaching. From their findings, portfolio construction advice offered about 1.2% in additional return. Wealth management on the other hand may add slightly more than 1% of additional return.

Behavioral coaching offered much more in additional returns of up to 1.5%. Your financial coach can help you avoid making decisions that might increase risk and hurt your portfolio. One of the biggest benefits offered by financial advisors is helping clients stick to an agreed investment and financial plan.

In addition to the mentioned benefits offered by financial advisors, the scope can often go beyond prior mentioned and may include things like tax management, estate planning, or social security optimization. Working with a financial advisor offers both tangible and intangible benefits, and many clients have come to appreciate this over time.

Reference

1 –  advisors.vanguard.com/iwe/pdf/ISGQVAA.pdf [2/19]

2 – https://www.thinkadvisor.com/2020/04/09/vanguard-measures-emotional-value-of-financial-advice/