You're my financial advisor; what have you done for me lately?

S.F. Ehrlich Associates |
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Retirement planning

It’s a fair question, so we’ll both ask and answer it.  While we believe we add value to our clients in excess of managing their portfolios, it’s not always easy to quantify the value of the work that we do. In years past, companies like Vanguard have probed this subject. The most recent attempt to value a financial advisor comes from Russell Investments, as published in the 10th edition of their “Value of an Advisor” study1.

Their study sorts the services offered by financial advisors into four categories:

  • Active rebalancing of investment portfolios - When investors fail to actively rebalance portfolios, their allocations tend to drift. This may result in: (a) a more aggressive portfolio over time, and (b) a lower rate of return over the long-term. Bottom line: according to Russell’s research, active rebalancing may add an average of 0.27% a year to the return of a portfolio.
  • Behavioral coaching - According to the study, this is the area where having a financial advisor can produce the most significant gains. Russell notes that “Investors are ruled by their emotions…Without an advisor’s guidance, many investors are likely to buy high and sell low.” Fear can impact opportunity; Russell’s findings conclude that keeping clients invested in the stock market, especially during downturns, may result in additional portfolio gains that average 2.5% per year. When investors try to chase returns by buying equities when markets are high, or attempt to flee falling markets, they can miss the opportunity for outsized market gains. Those missed opportunities can be significant.
  • Family wealth planning - “Planning is an ongoing process and is different across an investor’s lifecycle.” Investment needs change based upon: family needs, changes in income, years to retirement, risk tolerance, among other factors. In addition, a financial advisor can help to coordinate an investor’s team, which includes an attorney, accountant, insurance agent, et al. It’s a complicated, ongoing process, and Russell calculates the average annual gain to clients who have an investment advisor may be as much as 1.1%.
  • Tax-smart planning and investing - “Without proper tax management, many investors pay more taxes than they need to every April…Tax aware advisors who structure a portfolio and choose solutions that help minimize investment-related taxes can provide significant value.” Do you hold bonds in taxable accounts, or qualified accounts? And what about high-dividend stocks? What about harvesting tax losses? As measured by Russell, the benefits of tax-smart planning and asset location provided by a financial advisor can be worth up to an average of 1.1% per year. 

 

While all these benefits may not apply to every client every year, the bottom line is that there is an opportunity for investment advisors to significantly contribute to an investor’s ability to retire in a timely fashion with a higher expectation of success.

 

1 Jung, Brad. “The Value of an Advisor: What We Have Learned in the Past 10 Years.” Russell Investments, 9 May 2023.

 

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by S.F. Ehrlich Associates, Inc. (“SFEA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from SFEA.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  SFEA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of SFEA’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a SFEA client, please remember to contact SFEA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing, evaluating, or revising our previous recommendations and/or services.