For many years the professional financial advisor community and Vanguard, the giant mutual fund company, have had an uneasy relationship. Vanguard often touted their funds and platform as the low-cost investments of choice for the do-it-yourself investor. So imagine our surprise when a recent article of theirs featured a bold series of statements attempting to quantify just how much additional returns might be earned through the use of a financial advisor. Their conclusion? Maybe as much as 3% per year additional can be earned through the use of an advisor helping with their professional advice.
Having witnessed the flip side of this (how much damage folks can do to themselves through ignoring sound advice) I wasn’t surprised at their conclusions. The emotional swings that can come with market declines and the influence of chasing the latest investment fad have been demonstrated time and again by well meaning investors who weren’t able to maintain perspective in both up and down markets. But Vanguard’s quantifying of the potential value-add from working with a professional just have to be shared. They focus on 5 familiar wealth management principles and have dubbed them the “Alpha” framework.
These are familiar principles to the advisor community who have often talked themselves red in the face trying to communicate these ideas to their clients. I have to say that the great people I’ve had the pleasure working with over the years have a pretty clear idea of these and their trust and understanding is in no small measure responsible for our success as a firm. But even the most level headed of our clients can suffer through a rough patch in their thinking, wanting to sell all just when the markets are at their nadir or wanting to bet the farm on an asset that has just had a phenomenal run to the sky.
Here is a link to Vanguard’s article, interesting reading and worth a look.