Financial advisers can add 3 percentage points to client portfolios: Vanguard

Mutual fund giant teases research showing four areas advisers can add measurable value

Jan 27, 2014 @ 11:19 am

By Jeff Benjamin

financial adviser, alpha, portfolio, vanguard group
+ Zoom

A nimble and diligent financial adviser should be able to add about 3 percentage points' worth of measurable alpha to a client's portfolio, according to an upcoming report from The Vanguard Group Inc.

Vanguard chief investment officer Tim Buckley, speaking Monday in Fort Lauderdale at the Inside ETF conference, teased the audience with general details of the firm's first numeric analysis on how and where advisers can add and measure value.

“Advisers need to look at themselves and the value they can provide,” Mr. Buckley said in explaining the four broad categories of value-added opportunities.

“Be a great behavioral coach and get clients to stick to asset allocation, as opposed to chasing performance,” he said. “That can be worth 150 basis points of performance a year.”

Being tax savvy is another component of adding numeric value.

“Think about asset location, and think through the drawdown for clients,” Mr. Buckley said. “That can get you another 100 to 140 basis points for your clients.”

Mr. Buckley poked fun at Vanguard with the third point being the company's longtime mantra of “keeping costs low.”

“Whether investing in the broad market or going after specific factors, keep the expenses low,” he said. “That's worth 50 basis points a year.”

The final factor is re-balancing, which he said is worth about 40 basis points a year.

The report, due out next month, comes from a team headed up by Francis Kinniry, a principal in Vanguard's investment strategy group.

“We wanted to put a quantitative value around the tools in an adviser's tool kit,” he said.

As Mr. Kinniry explained it, and as it will be covered in much more detail when the full report is published, putting specific numbers behind adviser alpha gives advisers measurable reasons to focus on things like behavioral finance, and it also gives advisers the talking points to help explain their value to clients.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

3 tips when hiring millennials

Advisers want to add young talent, but ask if they want to add millennials and most will begin to squirm. Hunter Hart, and Marc Schliefer of Equity Planning Inc. disspell some myths and misconceptions of hiring millennials.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

How to save retirement planning from tax reform

Losing big deductions, even in lieu of a larger standard deduction, may cause taxes to rise in retirement.

Advice firms in a tricky financial position

As revenue growth dips and salaries rise, nearly 90% of firms are at or near capacity.

In a turnaround, Wells Fargo Advisors sees slight bump in headcount

Racked by a scandal in its retail banking unit, Wells still managed to add 37 new advisers in the third quarter, a small number but an improvement nonetheless.

Social Security benefits to increase by 2% in 2018

Largest cost-of-living adjustment since 2012 may be offset for some by higher Medicare premiums.

House panel approves legislation to kill DOL fiduciary rule, and 2 other adviser-related bills

The measures, which include revising the accredited investor standard and safeguarding those who report elder financial abuse, head to the House floor but face varying degrees of difficulty in the Senate.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print