Trying to determine what makes financial advice great may not be as difficult as imagined. A recent research report from mutual fund giant Vanguard Group, Inc. (Putting a Value on Your Value), identified 5 primary factors where financial advice renders substantial, quantifiable value. The most significant value, (1.5% per year according to Vanguard’s research), is derived from advisors keeping clients focused on their long-term goals and staying with their plan. This is followed by asset allocation, cost-effective implementation, re-balancing and developing a spending strategy. In total, the research estimates about 3% per year of value to net returns for clients.
Your Role in Defining Value
It has always been easier to describe the value of un-conflicted financial advice than it is to define this value. Some clients follow advice more carefully than others. This is of course the case with all forms of professional advice. I recall many years ago when I had a surgical repair to my ACL (knee ligament). The surgeon explained that he was confident in his ability to perform his end – the technical aspects of the procedure – but the real outcome would be determined by how compliant I was with physical therapy post surgery. In other words, I had almost as much to do with the result as he did. The same holds true in our client relationships. We can provide great advice but if it is not implemented the value is diminished.