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The Benefits of Hiring a Financial Advisor: Insights from Vanguard's Study

Kevin Ridgway, CFP®

If you're looking to build wealth or preserve the value of your hard earned money, hiring the right financial advisor could be your best bet.

Working with a qualified professional (Look for the CFP or CFA designation) is designed to give you a better investment experience, greater peace of mind, and save you the time you’d normally spend researching, managing, and worrying about your money.

Vanguard is one of the largest money managers in the world, which means they have more available information about individual investors and advisors than almost any other institution. Their Advisor’s Alpha® Study was originally released almost 20 years ago to quantify an advisors value. They periodically update this study with their most recent version being released in 2022. What stands out in the study might surprise you.

"So... does it just come down to picking the best investments?"

Not quite.

Lets take a look:

What stands out?

  • Advisor’s Alpha® Study: The study by Vanguard suggests that advisors can add up to an average of 3% annually in net returns. This is not to be expected every year and varies due to client situations and market circumstances. It can be very irregular, from non-existent one year to double digits the next – particularly during periods of market decline or euphoria.

  • Behavioral Coaching Impact: The study highlights behavioral coaching as the most significant factor, contributing up to an annualized 2% in additional returns by managing client emotions during market volatility.

Case in point, $1,000,000 invested in the S&P 500 for 10 years ending 12/31/2020 is worth $3,669,960. Missing just the 10 best days over that time ends up with

$2,015,760, a reduction of 45%!

  • Wealth Planning Value: Beyond investment advice, wealth planning includes capital sufficiency, estate planning, insurance, education planning, tax planning, and cash flow management, all contributing to the investor’s financial well-being.

  • Market Volatility Navigation: Advisors help investors navigate through unsettling market environments, like the 2008-2009 financial crisis, by keeping client fears and emotions in check, which can lead to better long-term outcomes. Keeping emotions in check prevents impulsive actions to abandon a long-term investment strategy or worse yet, go to cash altogether when markets get volatile.

  • Investing for Total Return Rather than Income: When you focus on total return that is unique to your own risk tolerance and time horizon, you open the door to better long-term outcomes through further diversification (risk management).

The best practices that were identified in the study align closely with PrimeNet's approach. It serves as an important reminder of how working with a qualified advisor (CFP or CFA) can improve the investor experience.


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