The Value of a Real Financial Adviser
Imagine having a consultation with a doctor and after having asked you some brief questions about your symptoms, he declared that you have cancer and will require a regime of cocktail drugs and chemotherapy, all without doing any diagnostic tests on you.
You probably wouldn’t take his diagnosis seriously and would likely seek a second opinion from a more responsible doctor.
The value of a real adviser can often times be hard to quantify because following good advice tends to keep you out of trouble. And because these big mistakes do not occur, it is hard to see that the advice has indeed worked.
American investment giant, Vanguard first released their Advisor Alpha study in 2001. The study estimates that a real adviser will add in excess of 3% per year to investor’s returns through giving of sound advice on tax efficiency, managing cost, risk, and asset allocation.
A simple example — if the overall market gives you a return of 8% per year, without good decision making, the effect of fees, taxes, and poor investment decisions shave off 4%, leaving the investor with a net return of 4%. A capable adviser helps to eliminate poor money decisions, helping the investor to capture all available market returns and more. Because fee-based adviser charge a fee for their expertise and services, let’s assume it to be 1% p.a. After fees, the net return to the investor should be 7% or more.
Morningstar did a similar study titled Alpha, Beta, and Now…Gamma, looking across a range of investment decisions such as withdrawal strategies, asset allocation, tax efficiency, liability optimisation, and annuity allocation. They found that good advice contributes 22.6% more spending ability (or at least 1.59%¹ more returns a year).
Carl Richards, the creator of the sketch above gives us a possible reason why real financial advice is not common in the market place. He says that people who don’t see the value of a real financial adviser, probably have only engaged with fake ones in the past. He jokes that ‘real financial advisers are like a secret society, in that they’re hard to find. They’re not making a bunch of noise like the fake ones. They’re just busy doing professional work.’
I think we can agree that people would benefit from professional advice in all areas of their life— not just investing.
Most of us would trust an accomplished physician to manage our health. After all, physicians have specialised training, real-world experience and access to tools outside the reach of the general public. Most importantly, they took an oath to prioritize the patient’s health over their own interests.
In the same fashion, GYC espouses the same expertise in markets as good physicians do with health care. In addition, we adapt insights from financial science to develop a financial plan that is built upon a rigorously tested investment philosophy.
Click here to schedule an exploratory chat with us as we discuss how we can work hand in hand with you to accomplish each of your unique goals.
¹Over a 30-year period, starting with a 4% withdrawal rate in the median case will require 1.59% more returns to deliver 22.6% more spending.