Many advisors charge only between 1% and 2% in fees, but a national sales director has told Investor’s Business Daily
that the value of an advisor’s service is actually worth 3.75% for a client portfolio of $500,000, according to a Financial Advisor IQ
’ Managing Director of National Sales Brad Jung made the conclusion after quantifying the value added by an advisor across several typical services.
The advisor’s ability to help clients time the market correctly is the most valuable, pegged at 2.1% of assets. The figure is based on the difference between market gains in Russell indices and mutual fund flow data from the Investment Company Institute.
Financial planning – which includes estate planning, investment education, and tax preparation – are worth an additional 0.75%. Bought separately, the services would cost thousands of dollars.
Timing investments to aim for tax benefits would warrant 0.45%, based on Jung’s comparison of tax-managed and non-tax-managed US stock mutual funds.
Creating a financial plan and providing continuing guidance is 0.25%, based on fees charged by a dozen robo-advisors that offer only investment management and occasional phone support services.
Finally, annual portfolio rebalancing merits another 0.2%, which Jung arrived at by getting the average annual gains of 10 model portfolios that were balanced once a year from 1988 to 2015, getting average annual gains for the same model portfolios sans rebalancing, and getting the difference.
While different studies attempting to quantify the value of an advisor’s services have been conducted with widely varying estimates, the general consensus is that top advisors help clients spot investment opportunities they would not have recognized themselves, as well as take advantage of tax strategies.
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