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How Much Value Does Your Advisor Provide?

According to a study by Vanguard, it could be approximately 3%1. Is this due to the advisor choosing the right mutual funds, market sectors or individual stocks ahead of time that will outperform or by knowing just when to get in and out of the market? No, and in fact the evidence shows that trying to outperform the market is a losing strategy in the vast majority of attempts2.

Instead, Vanguard found that the 3% advisors could add is due to a combination of many factors that, added together, can make a very significant difference in your retirement lifestyle.

The three basic categories are:

  • Portfolio Design – setting up a properly diversified, low cost portfolio with proper asset location for tax efficiency
  • Portfolio Management – setting effective rebalancing strategies and portfolio spending strategies during retirement
  • Behavioral Coaching – helping to keep your strategy intact and stay the course during times of market stress (or in times of “irrational exuberance”)

Together, these factors can provide about a 3% advantage to your return compared to not practicing those principles. How big a deal is 3%?In a word...HUGE! And it can translate to staggering differences in retirement lifestyle. $10,000 compounded over 40 years at 5% is $70,400, but at 8%, it’s $217,245. [This illustration is theoretical and is not a guarantee or recommendation of any specific investment return or investment strategy].

Of course, you need to be aware of the fees you are paying. If you are dealing with a fiduciary, fee-only advisor, you should already know exactly how much you are paying for advice and also how much your advisor is receiving for this advice they provide (in the case of such an advisor, those two should be the same amount).

If you want to discuss Vanguard’s study in more depth, please send me an email


1 The added value of financial advisors, Investor note, 2014 and Putting a value on your value: Quantifying Vanguard Advisor’s Alpha, Vanguard research March 2014, Francis M. Kinniry Jr., CFA, Colleen M. Jaconetti, CPA, CFP ®, Michael A. DiJoseph, CFA, and Yan Zilbering

2 William F. Sharpe, The Arithmetic of Active Management, 1991 and Vanguard’s Principles for Investing Success, figures 9, 13 and The case for index fund investing, April 2013, figures 2,4,7

Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor.  Tel: (910) FEE-ONLY.   Synergy Financial Planning may offer investment advisory services in the State of Connecticut and in other jurisdictions where exempted.

Investing involves substantial risk and has the potential for partial or complete loss of funds invested. Investments mentioned may not be suitable for all investors. Before investing in any investment product, potential investors should consult their financial or tax advisor, accountant, or attorney with regard to their specific situation.