Financial advisors are worth four times what they typically charge for their services, says Russell Investments.
Advisors on average charge a 1 percent fee on assets under management, but the work they do results in a 4 percent savings for investors, Russell Investments says in an annual report on the value of investment services.
“A rising stock market and the growth of robo-advisors have contributed to popular skepticism about the value of human financial advisors,” Russell says. “When virtually all stocks are rising, it doesn’t seem hard to throw together a winning portfolio, but standard investment selection has arguably become one of the least valuable parts of an advisor’s value.”
Having a “behavior coach” is likely to be the single largest contributor to the total value that advisors bring their clients. The average stock fund investor’s inclination to chase past performance cost him or her about 2 percent annually from 1984 to 2016, Russell says. That is something a behavior coach could have kept an investor from doing.
“Tax-aware investing is an area where advisors can add as much as 80 basis points in value and, at the same time, distinguish themselves from competition while demonstrating fiduciary standards of expertise,” the firm says.
In addition, advisors consistently underestimate the value of ancillary services, such as planning and tax preparation, which can add as much as 75 basis points, Russell says. Finally, the periodic portfolio rebalancing that an advisor does not only contributes about 20 basis points in value each year, it also prevents a 1.6 percent loss due to risk.