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  • Michael Livian


As professional money managers we are often faced with the question: what is your added value? In March 2014 Vanguard released a research report titled: "Putting a value on your value."

In this study Vanguard attempts to quantify the benefits that advisors can add to the non professional investors. Vanguard calculated that professional advice can add up to 3% a year in net of fees and taxes returns. The sources of this "alpha" or "value add" are not, however, market outperformance. In fact, they are:

1) Behavioral coaching: teaching investors not to panic during crashes and not to get too excited during rallies.

2) Asset location: more efficient use of tax deferred accounts, tax-advantaged financial instruments and the efficient use of realized gains and losses.

3) Cost-effective implementation: reduction in the expense ratios (transaction costs, fund fee, etc.).

4) Asset allocation and rebalancing policies.

To read the original Vanguard research report please click here.

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