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FAs Warned: Take a Sober Look at Your Value-Add

May 1, 2017

Financial advisors shouldn’t be encouraged by reports that they bring more than 4% added value to investors because investors can get a typical advisor’s services far cheaper from various competing sources, financial advisor coach Dan Solin writes in Advisor Perspectives.

Russell Investments, which released a report in March concluding that advisors bring 4.08% in value, should have considered the costs of obtaining the services of a traditional advisor elsewhere, according to Solin, a former financial advisor.

Much as Russell did in November, when it put that number at 3.75%, the firm arrived at 4.08% by calculating the added value of typical advisor services including correcting investor mistakes, annual rebalancing, basic investment advice, and financial planning with a view to taxes. But many of these services are available at a far lower cost than the 1% typically charged by a traditional advisor, Solin writes.

Preventing investors from buying high and selling low could be worth the 2% annually Russell attributes to it, he writes. But that sort of counseling is available from low-cost providers such as Vanguard, Schwab and robo-advisors — which charge as low as 0.30% for services that also include investing coaching and tax minimization, according to Solin.

The 0.2% Russell attributes to the value brought from rebalancing, meanwhile, doesn’t account for products that don’t require it, such as target-date funds, or for balanced funds that do so automatically, he writes. And investors can do it themselves for free anyway – in about 30 minutes per year, Solin says.

As for the 0.75% Russell attributes to annual planning costs and 0.80% to tax-aware planning and investing, those services are offered much cheaper from hybrid robos such as Vanguard’s or premium offerings from robo-advice providers such as Betterment, he writes. In addition, fee-only financial planners also offer such advice, and with set fees the overall cost can be far lower than 1% on portfolios that are big enough, according to Solin.

By Alex Padalka
  • To read the Advisor Perspectives article cited in this story, click here.