Updated for 2022, Russell’s Value of An Advisor Study estimates that US financial advisors more than earn their keep by providing an approximately 4.91 percent improvement in outcomes versus investors without the benefit of an advisor.
That 4.91 percent is quantified through four primary mechanisms.
First, active rebalancing was estimated to provide not only a 0.11 percent benefit to investor returns, but a 0.51 percent reduction in volatility as well, adding not only to investor value but also financial peace of mind.
Second, behavioral coaching was estimated to add 2.37 percent demonstrated by estimated returns for those who stayed in the market versus those who may have moved to cash in March of 2020, for example. As has been shown in many analyses, the cost of investor behavior can often lead to missing the best days in the market—an approach with significant implications, and costs.
Third, a customized experience accounted for 1.21 percent of client value, comprised of managed complexity, navigation of life’s changes, consideration of legacy and generational planning preferences, and streamlined introductions to trusted experts in adjacent fields like tax and legal.
Last, tax-smart planning and investing added an additional 1.22 percent, on average, and was achieved through thoughtful management of capital gains distributions, reduced tax drag, tax-loss harvesting and asset location strategies.
All told, this 4.91 percent far outweighs the average advisory fee of 1.05 percent or the average fee for comprehensive family wealth planning fee of 1.50 percent.
If these are areas where you and your firm excel, you might find this to be a helpful framework for communicating quantifiable value to clients. And, if there is room to improve your knowledge, sophistication and offerings in any of these areas, the quantified attribution might help to narrow your focus in 2022. As Russell has confirmed, the value to clients in these areas is both measurable and significant.
Christy Charise, Founder & CEO of Strategic Advisor