Welcome to Financial Advisor IQ

Russell Rep: FAs Are Really Worth 3.75% in Fees

November 23, 2016

Even though many advisors only charge around 1%, the value a financial advisor brings to a client portfolio of $500,000 is really around 3.75% of assets, a national sales director tells Investor’s Business Daily.

Brad Jung, managing director of national sales for asset manager Russell Investments, arrives at the number by quantifying an advisor’s added value across several typical advisor services. The biggest by far is the advisor’s ability to help clients avoid exiting the market at the wrong time or waiting too long to get back in, Jung tells the publication. The value an advisor brings in this regard is about 2.10% of assets, based on the difference between market gains in Russell indices and mutual fund flow data from the Investment Company Institute, Investor’s Business Daily writes.

Furthermore, investors with a portfolio of $500,000 in assets gain an additional 0.75% in value from their advisor’s financial planning and other services, including estate planning, investment education, tax preparation and advice on insurance and retirement income, Jung says. Purchased separately, such services can add up to thousands of dollars, he says.

Meanwhile, an advisor timing investments with an eye to tax advantages brings the client 0.45% in value, according to Jung. He arrived at the figure by comparing tax-managed and nontax-managed U.S. stock mutual funds.

Creating a financial plan and offering ongoing guidance brings an additional 0.25% to an advisor’s worth, based on fees charged by a dozen robo-advisors only providing investment management and occasional phone support, Jung tells Investor’s Business Daily.

Finally, annual portfolio rebalancing is worth another 0.20%, according to Jung. That’s the difference between the average annual gains of 10 model portfolios that were balanced once a year from 1988 to 2015 compared to the same portfolios without rebalancing, the publication writes.

There are wide disparities among studies attempting to quantify the worth a financial advisor brings to a client’s investment portfolio. Nonetheless, together they suggest that top advisors can often steer clients into investments they would otherwise miss and can be particularly useful in taking advantage of tax strategies, according to Seeking Alpha.

By Alex Padalka
  • To read the Seeking Alpha article cited in this story, click here.
  • To read the Investor's Business Daily article cited in this story, click here.