Ever wondered if your adviser is giving you value for money?

Research from Vanguard’s Investment Strategy Group reveals that Australian financial advisers can add about 3 per cent in net returns for their clients by focusing on key wealth management topics, including asset allocation, behavioural coaching and cost-effective implementation, as well as other relationship-oriented services.

The research paper from Vanguard, Putting a value on your value: Quantifying Vanguard Adviser’s Alpha, explores the individual best practices within Adviser’s Alpha, a wealth management framework that Vanguard originally launched in the United States in 2001. The new research extends Vanguard’s initial 2012 work on Adviser’s Alpha in Australia, and uses local data to examine six “quantification modules” that outline where advisers can add direct value for clients.

Calculating how much an adviser can add in net returns is based largely on their approach to six wealth management best-practices. Although the exact amount may vary depending on client circumstances and implementation, an adviser can add value in the following areas:

Behavioural coaching:

As investing evokes emotion, advisers need to help their clients maintain a long-term perspective and a disciplined approach. Abandoning a planned investment strategy can be costly.

Cost-effective implementation:

Research has repeatedly shown that low costs are associated with better investment performance, and are a critical component of every investor’s tool kit.

Rebalancing:

Over time, as its investments produce various returns, a portfolio will likely drift from its target allocation. An advisor can add value by ensuring the portfolio’s risk/return characteristics stay consistent with a client’s preferences.

Asset allocation:

Asset allocation and diversification are two of the most powerful tools advisers can use to help their clients achieve their financial goals and manage investment risk.

Tax efficiency:

Advisers can help their clients formulate a savings strategy to ensure their clients are making the most of tax-advantaged savings opportunities; advisers can also implement those plans in a tax sensitive manner.

Total-return versus income investing:

Vanguard believes in maintaining a broadly diversified portfolio and following a total-return approach considers both components of total return: income plus capital appreciation. The potential advantages of this approach include less risk and a longer lifespan for the portfolio.

Full details of the research can be found in the white paper Putting a value on your value: Quantifying Vanguard Adviser’s Alpha.

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