FYI: Vanguard originally rolled out their advisor’s alpha concept in 2001. It’s updated each year and they say the amount of value a successful advisor can add to a client is “about 3%” per year.
The breakdown looks something like this:
Portfolio construction (suitable asset allocation, keeping expenses low, asset location, etc.)
Wealth management (rebalancing, intelligent spending down of the portfolio, tax efficiency, etc.)
Behavioral coaching (advisor guidance)
The estimate for behavioral coaching is the highest of the three at roughly 1.5%. Obviously, this is almost impossible to measure because there are no counterfactuals. Successful investing is the absence of big mistakes but it’s tough to quantify things you don’t do.
But let’s set that aside and assume this behavioral coaching does add value to the client’s bottom line. Many advisors claim this behavioral coaching includes things like helping clients stay the course or avoid selling out during a bear market.
No client, let alone one with hundreds of thousands or millions of dollars wants to hear about behavioral coaching because it can come across as demeaning. No one wants to hear how emotionally inferior they are.
Michael and I discussed this on the podcast last week:
Regards,
Ted
https://awealthofcommonsense.com/2019/07/the-work-required-to-behave-in-the-markets/
