Quantifying the Value of
a Financial Advisor

Social Security Elections

Financial advisors versed in Social Security elections can help clients claim extra dollars in additional benefits over a couple’s lifetime by filing for Social Security at optimal times within the context of a financial plan.

Behavioral Coaching

Vanguard research* suggests “behavioral coaching” adds 1% to 2% of additional return to investors’ portfolios.¹

Asset Allocation And Diversification

Vanguard research* found this variable difficult to quantify but significant nonetheless. Investors who understand asset allocation and their investments tend to stick to a long-term strategy.

Cost-Effective Implementation

Vanguard research* found that advisors can help investors earn .45% of additional return for investors by using lower cost investments.²

Rebalancing

Vanguard research* found that advisors can help investors earn up to .35% in additional return by rebalancing portfolios on an annual basis^.3

Asset Location

Vanguard research* found that advisors can help investors earn up to .75% of additional return by building assets in different “tax buckets” – i.e., tax-advantaged or taxable. The majority of the benefits occur when the taxable and tax-advantaged accounts are roughly equal in size, the target allocation is in a balanced portfolio, and the investor is in a high marginal tax bracket.⁴

Withdrawal Order For Retirement Distributions

Vanguard research* found that advisors can help investors earn up to .70% in additional return by helping clients withdraw assets in the correct order from the various “tax buckets” in their portfolios, depending on the investor’s marginal tax bracket and the investor’s “bucket” size (the breakdown of assets between taxable and tax-advantaged accounts). The greatest benefits occur when the taxable and tax-advantaged accounts are roughly equal in size and the investor is in a high marginal tax bracket.⁵

Estate Planning

This is difficult to quantify, but advisors versed in estate planning concepts can help clients use less attorney time and therefore pay less in legal fees. In addition, beneficiary designation forms that are incorrect or outdated can cause your financial plan to fail.

Insurance Elections

Financial advisors versed in the various insurance products can make sure that your insurance protection is appropriate, and help clients purchase the most cost-effective insurance plans. Inadequate insurance protection can cause your financial plan to fail.

*See Putting a Value on Your Value: Quantifying Vanguard Advisor’s Value, March 2014.
¹Based on a Vanguard Study of actual client behavior, it was found that investors who deviated from their initial retirement fund investment trailed the target-date fund benchmark by 150 bps. This suggests that the discipline and guidance that an advisor might provide through behavior coaching could be the largest potential value-add of the tools available to advisors. In addition, Vanguard research and other academic studies have concluded that behavior coaching can add 1% to 2% in net return.
²This value-add is the difference between the average investor experience, measured by the asset-weighed expense ratio of the entire mutual fund ETF industry, and the lowest-cost funds within the universe. This value could be larger if using higher-cost investments than the asset-weighted averages.
³Up to 35 bps when risk-adjusting balanced annually versus the same portfolio that is not rebalanced (and thus drifts).
⁴If any investor has all of his or her assets in one account type (that is, all taxable or all tax-advantaged), the value of asset location is 0 bps.
⁵If an investor has all of his or her assets in one account type (that is, all taxable or a ran investor is not currently spending from the portfolio, the value of the withdrawal order is 0 bps.