Estes Wealth Strategies
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Compass Points

Financial Insights for Navigating

Your Life of Possibilities


How Do You Measure the Value of a Financial Advisor?

What is the value of a financial advisor? Anyone working with—or considering working with—a financial advisor should ask this question. After all, you are hiring and paying someone to help you make life-impacting decisions about how to invest and manage your money. You expect, of course, to be better off for doing so.

*Value is believed to be positive but too unique to each investor to quantify    Source:    Putting a Value on Your Value: Quantifying Vanguard Advisor's Alpha    (2016)

*Value is believed to be positive but too unique to each investor to quantify

Source: Putting a Value on Your Value: Quantifying Vanguard Advisor's Alpha (2016)

The challenge, however, is how to quantify the value that a financial advisor delivers. Most people think immediately of the gain or loss that shows up on their investment statements. But does that figure really tell the whole story?
Several years ago, the investment management company Vanguard explored the question of "financial advisor worth" and concluded that the value equation was much more complex than simply looking at a portfolio's annual return.

Based on their analysis, Vanguard postulated that advisors "can potentially add 'about 3%' in net returns" by incorporating seven wealth management best practices. The chart to the right shows a breakdown of each best practice and the corresponding value contribution, as estimated by Vanguard's researchers.

The "value estimates" Vanguard assigns to each advisor best practice are interesting to consider, but they are really just that—estimates. Actual values will vary significantly based on each individual's unique circumstances.

Vanguard also notes that the 3% "boost" should not be anticipated annually—but rather is likely to be "lumpy" over the lifetime of the advisor relationship.

The big take away is that an advisor's contribution to your financial success, however you define it, can happen on many different levels, beyond just picking investments.

Vanguard's report highlights the many less tangible value factors that may not show up on a quarterly client statement—but are nonetheless part of an advisor's value equation. For example:

The Value of "What Ifs"

As the Vanguard researchers note, a client statement only reveals the implemented decision and outcome that actually happened. It does not take into consideration the infinite alternatives that might have happened had different decisions been made—the "what ifs," so to speak.

You (like many), for example, may have been tempted to sell off during the market crash of 2008—and might actually have done so without guidance to stay invested. The difference between the hypothetical cash out in 2008 and the returns you likely enjoyed throughout the market's recovery is "invisible" value that could be attributed to working with an advisor (but won't show up on any balance sheet).

The Value of a Long-Term Plan

The financial planning process provides a methodical and collaborative framework for you and your advisor to formulate a personalized investment plan based on your unique time horizon, risk tolerance and objectives. This plan becomes the foundation and reference point for every future investment decision. It can be the difference between methodically moving toward your long-term goals and letting reactive, short-term decisions potentially derail your progress.

The Value of "Coaching"

According to the researchers at Vanguard, of all of the "value-add" services an advisor can provide, behavioral coaching may be the most significant—accounting for as much as half of the estimated 3% added value Vanguard believes an advisor can deliver.

If you've ever worked for an extended period of time with a personal trainer, life/career coach, physical therapist, or even a tutor, you understand the positive influence this kind of coaching relationship can have in helping to foster discipline, provide clarity, and instill accountability. The same is true when working with a financial advisor, someone who can help you stay focused on your goals and provide guidance during both market highs and lows.

The Value of YOUR Time

If there's one thing that's unquestionably finite in our lives, it's time. How much do you value yours?

For many people, choosing to work with an advisor is a means to free up time for other things that hold value for you—working, family, hobbies, volunteering, traveling, or even just relaxing. Most of these pursuits (with the exception of working more) will never be monetized. But when you do your own personal cost-benefit analysis, you may find that the hours saved by having a trusted advisor do the heavy lifting of financial planning and investment management is value worth paying for.

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At Estes Wealth Strategies, we have always considered "adding value" to be the core purpose of our business. As a reminder of this, we find it useful to periodically revisit our value proposition, which states:

We strive to fulfill the highest standards of professionalism and performance for our clients and distinguish ourselves through:

Focused Expertise: We research the latest market and legislative trends—so you don't have to. And we draw on industry best practices, along with our experience and expertise, to manage your account.

Independent Advice: Our only agenda is to provide you, our client, with the most informed and objective financial advice focused on your financial success.

Professional Client Service: Providing superior client service, supported by proactive communications and outreach, is a core value that guides how we do business.

It is our sincere hope that we have delivered on this value proposition to you, our client, and shown our worth as a valued partner in helping you financially navigate life's many chapters and pursue your goals.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Estes Wealth Strategies is not a registered broker/dealer and is independent of Raymond James Financial Services.
Any opinions in this newsletter are those of Estes Wealth Strategies and John Estes and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.Diversification and asset allocation do not guarantee a profit nor protect against loss. Investments are subject to risk including the possible loss of capital. Certain conditions may apply.  Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.
The information provided does not purport to be a comprehensive description of securities, markets, or other developments. This information has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information provided is not a complete summary or statement of all available data necessary for making an investment decision, nor does it constitute a recommendation.