Have you ever had a prospective investor or current client ask how you can be worth your fees?

Or maybe they were just thinking, “How can this Registered Investment Advisor or financial planner add value to my portfolio?

Or simply: “Is he [or she] worth it?

A 15-year study by Vanguard Advisors “The Added Value of Financial Advisors”has sought to put a value on your value. (See infographic.)

The Vanguard answer: Advisors can potentially create 3% added value each year to client returns.

That’s after fees, expenses, and taxes.

So how can you potentially create 3.00% more each year than the average advisor?


The three factors in your control are behavioral coaching, asset allocation, and wealth management.

1.  Behavioral Coaching: 1.50% (or more)

Managing client behavior in challenging markets – and adhering to the long-term financial plan you’ve set out for them is a critical part of your value. “Periods of significant underperformance can undermine your client’s trust in you,” says the report.

As the market gyrates, trusted Uncle Harry may have told your client that he lost a bunch of money when the stock market last tanked. Or someone on Twitter or the TV, your client can’t remember which, said that mutual funds were too expensive, or a fool’s errand, or something, he’s not sure.

How to overcome these and similar objections? See behavioral finance experts Kent Baker and Victor Ricciardi’s article: “Advising Clients During Turbulent Markets.”

2.  Portfolio Construction: 1.25%

Asset allocation is merely the second area in which you can potentially add value. Which stocks, bonds, mutual funds, ETFs, hedge funds, CTAs, sectors, managers, risk profiles and so on, do you select as suitable for your clients?

Related: Test Your Investment Marketing IQ.

3.  Wealth Management: Up to 1.05%

How you help your clients rebalance their portfolios – and how frequently and systematically – is the third most critical factor in achieving alpha.

Why rebalance? According to Vanguard: “Over time, asset classes produce different returns, so the portfolio’s asset allocation changes. Therefore, to recapture the portfolio’s original risk-and-return characteristics, the portfolio should be rebalanced.”

Get the Vanguard study, “The Added Value of Financial Advisors” [PDF] here.

Disclaimer: Investing is subject to risk, including possible loss of principal. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Past performance does not guarantee future similar results.

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