Back in 2014, Vanguard first conducted a study of the value of working with a financial advisor. At that time, the company's research showed that "[your] advisor not only adds peace of mind, but may also add about 3 percentage points of value in net portfolio returns over time." This was a revelation, coming from a company that espoused do-it-yourself, low-cost index investing. But why would Vanguard publish such a study? Why not keep it internal?
I don't presume to have a window into the minds of Vanguard's marketers, but it has long been the case that financial advisors and planners, like this author, have used Vanguard funds. Contrary to what some investors believe, Vanguard is not the alternative to working with an advisor. Rather, Vanguard's funds are a viable investment option for advisors to recommend to their investors, subject to suitability.
I have met possibly hundreds of prospective clients who have chosen to draw this line between Vanguard and working with an advisor. No other company seems to stir such passion and commitment among some investors. But what is not known by these investors is that many advisors feel the same way, though they also understand that Vanguard does not have a monopoly on good ideas. Other fund companies provide mutual fund and exchange traded fund investments that may, or may not, offer better exposure to certain markets, better tax-efficiency, longer more consistent management, or an allocation better suited to a client. The role of the advisor is to help put forward the best and most suitable ideas from each company.
The primary focus of Vanguard's study was to highlight why advisors add value and those reasons include:
- Providing suitable investment recommendations;
- Regular rebalancing of portfolios;
- Developing spending strategies for retirement income; and
- Guidance to help adhere to a financial plan.
If you seek out a financial advisor who is both a fiduciary, meaning that they act in your interest, and a financial planner, you may very well increase your growth opportunities over investing solely on your own. You don't have to take my word for it. Take Vanguard's.
The full copy of this report can be found at advisors.vanguard.com/advisorsalpha.