Quantifying a Financial Advisor’s Value

Quantifying a Financial Advisor's Value

Quantifying a financial advisor’s value has become easier in recent years as financial services firms have undertaken and completed studies on the matter.  Firms such as Vanguard, Morningstar, Dalbar and most recently Russell Investments, have added to the body of knowledge on this topic.

The significant global changes of the past 24 months have prompted more than a few investors to consider seeking out a financial advisor to help them navigate the marked changes in the investing landscape.  In doing so, investors are trying to determine the value they hope to receive in exchange for the advisor’s costs.  That can certainly be a challenge.  Now, thanks to the work of leading global investment manager Russell Investments, part of the answer is clearer to see for 2022.

Studies Can Help Quantifying a Financial Advisor's Value

Russell has developed a formula to help determine the tangible benefits of working with an advisor.  The Russell formula identifies four separate financial advisory services and measures the value of each, noting that in 2022, investors might add an extra 4.91% of investment return.  The study quantifies how making better financial planning and investment decisions can lead to better investment results.

Many investors believe that the growth of their nest egg depends on the investments they pick.  The more successful the investments, the bigger their nest egg will grow.  As it turns out, specific investments are typically less important than several other factors and portfolio-building decisions.

Russell’s study looked at four services an advisor can offer to help investors make better financial decisions:

  • Active rebalancing of investment portfolios;
  • Behavioral coaching;
  • Tailoring the client experience around family wealth planning; and
  • Tax-aware planning and investing.

The study found that “following a holistic family wealth planning process” leads to additional investment returns.  These results are directionally correct with the consistent results of the prior year studies completed by Vanguard, Morningstar and Dalbar.

An Advisor's Value Can Be Reflected Beyond the Numerical Results of Studies

In our practical experience working with clients over the years, advisors can also add meaningful additional value that is not reflected in the Russell study.

A professional advisor can help provide you with so much more:  help in spotting risks and issues that need your attention; thoughtful counsel about how to provide financial support and help with building positive money behaviors for those you love; how to best help family members with special needs; and how to develop purposeful philanthropy, just begin to scratch the surface of more value available to you from a professional advisor.

Consider the Additional Benefits and Value of a Fiduciary Advisor

There are two different legal standards of client care for financial advisors and the standards differ depending on the services the advisor provides and the attendant required regulatory registration. First, and most importantly, be sure any person who is providing you with financial advice is registered with the appropriate regulatory authorities, as required.

A fiduciary advisor is regulated under the highest legal standard of care and stands in a special relationship of trust, confidence and responsibility with another person. The duties of a fiduciary advisor include loyalty to the client and reasonable care with regard to the client’s assets.

All of a fiduciary’s actions are to be undertaken in the best interest of the client. A fiduciary must avoid self-dealing and minimize and disclose conflicts of interest to the client.

These tasks may appear simple enough, but the fact is only only a small percentage of all advisors and brokers are allowed by their firms to make these commitments in writing.

Consider the Additional Benefits and Value of a Fee-Only Advisor

Fee-Only refers to compensation for a service. A Fee-Only advisor charges the client directly for advice and/or ongoing financial management.

No other financial reward is provided by any institution, which means that the advisor does not receive commissions or other forms of compensation on the actions they take on the client’s behalf.

Fee-Only practitioners may not receive commissions, rebates, finder’s fees, bonuses or any other form of compensation from others as a result of a client’s implementation of the practitioner’s financial advice or planning recommendations.

The National Association of Personal Financial Advisors (NAPFA) ascribes Fee-Only to a practitioner, who in all circumstances is compensated solely by the client, with neither the practitioner nor any related party receiving compensation that is contingent on the purchase or sale of a financial product. It is the required form of compensation for NAPFA members. Compensation is based on an hourly rate, a percent of assets managed, a flat fee, or a retainer. Fee-Only compensation helps minimize conflicts of interest.

Fee-Based Advisors Are Not the Same as Fee-Only Advisors

Fee-based advisors may collect sales or brokerage commissions and other forms of compensation from financial product sales to you in addition to collecting an advisory fee.

You’ll want to ask a fee-based advisor why collecting both an advisory fee and brokerage commissions and other forms of compensation from financial product sales is necessary and better for you (versus better for them), and how you will know when the advisor and the advisor’s firm will be separating their sales efforts to you from their fiduciary duty to put your interests first when they are advising you.

Ask how the advisor will make clear and complete disclosures to you so you’ll know when they are trying to sell you an investment, insurance or annuity product and when they are providing you with independent, objective
fiduciary financial advice.

Ask what measures they take to ensure their independence, objectivity, and accountability to you when they are advising you. Ask how they manage the  potential for compensation conflicts.

Our Proprietary Guide Helps You Quantifying a Financial Advisor's Value

The value of an advisor expands with interdisciplinary training and depth-of-field.  A good advisor can provide collaborative leadership for your other advisors – accountant, estate planning attorney, insurance professional – to help ensure you are benefiting from a whole-system approach to managing your wealth.

Working with an advisor to help you make better decisions can result in more than just peace of mind.  Doing so can result in concrete and quantifiable value and help create better outcomes for those you love and care about.  Use our guide, Selecting a Wealth Management Professional, to help you in quantifying a financial advisor’s value.

Professional Wealth Management.

It's just part of what we do.

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