The new year is often a time when people make resolutions about their finances. Typically financial resolutions are about saving more, cutting costs, and developing a plan to reach your financial goals. These resolutions might leave you asking “is it time to engage a financial professional and if I do, is it going to be worth the cost?” Perhaps you already have an advisor and are asking the question “is my advisor really worth the cost?”

We challenge investors to take a look at these questions in a different way. Ask yourself “would/did the advisor’s fee earn me more (net of fee) than if I did this on my own?”

According to a study done by Vanguard, the answer is yes. The study concluded that investment advisors increase their clients’ returns by 3% a year. That can add up fast, with the effects of compounding during a 10 year period your assets could be higher by over an additional 30%.

Vanguard says there are five main reasons for why and how the investment advisors add that extra 3% annual return for their clients. The five reasons according to Vanguard are:

1. Keeping You Focused on the Long-Term – “Behavioral Coaching” (adding +1.5%)

Oftentimes when left to their own devices, investors will react emotionally to market fluctuations. They will buy at the high when things are great, and sell at the low when things deteriorate. Using tools to determine your risk tolerance, along with a clear financial plan, your advisor can develop an investment portfolio that aligns with your goals, objectives, and risk tolerance, allowing you to keep focused on the long-term.

2. Personalized Asset Allocation (adding +.75%)

A personalized asset allocation serves as a long-term road map for getting you where you want to go. Your asset allocation is determined based on two important factors: your ability to take risk and your willingness to take on risk. In addition to the personalized asset allocation, advisors will often utilize a tactical asset allocation that includes slight variations from your personalized asset allocation, with the intent of making the trip a smoother ride while also improving return potential.

3. Keeping Investing Costs Low (adding +.40%)

This point is pretty straightforward – the less you pay in expense, the more money you keep. Advisors add value by investing your assets in institutional-grade mutual funds and low-cost ETFs, which often come with a lower expense ratio.

4. Rebalancing (adding +.35%)

Rebalancing involves periodically buying or selling assets in your portfolio to maintain the original asset allocation. Rebalancing is vital as it helps investors avoid unnecessary risk. It also takes discipline, as in some cases it requires you to buy more of what has been underperforming and sell what has been doing well. Your advisor will provide that discipline and keep you positioned for long-term success.

5. Tax Planning (adding +.70%)

Advisors can provide a “tax-smart” approach to your investments, which will have a significant impact on your after-tax returns. By carefully evaluating your mix of tax-free, tax-deferred, and taxable accounts, advisors can help to minimize the tax you pay throughout retirement.

How We Help You

As an advisor, our goal is to earn our fee every quarter. Our job is to help our clients reach their financial goals. Our process helps to keep the focus on the long-term by developing a low-cost, tax efficient portfolio customized for you, which we then monitor on a daily basis.

If you have questions on your portfolio, contact us today.