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

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

Featured video

INTV

What it took to win an Excellence in Diversity & Inclusion Award

Editor Fred Gabriel and special projects editor Liz Skinner explain how InvestmentNews chose the winners of our inaugural Excellence in Diversity & Inclusion Awards.

Latest news & opinion

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.

SEC slaps Lockwood with $200,000 fine over unseen trading costs to clients

Clients were forced to pay fees in addition to the usual wrap charges, the regulator maintains.

Gotcha! 10 lessons from brokers gone bad

These cases show why regulators nabbed reps and firms, and how to avoid their fate.

Tax-credit investigation may trip up Wells Fargo

Justice Department is investigating bank's dealings in tax credits for low-income housing, sources say.

10 biggest boomtowns in America

These metro areas are seeing the biggest influx of people, work opportunities and business growth.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print