What is the payoff of working with a financial advisor - Vanguard study, Ep #80

  There are many ways you can do your retirement investing, from do-it-yourself platforms like Vanguard to the exclusive advice of Financial Advisors. If you want to go the route of working with a Financial Advisor, you need to understand how they are paid and how that impacts the service you will receive. Most importantly, it's important to know how you can quantify the value a financial advisor brings to the table. Vanguard did a study on this issue a while back that revealed a number of benefits the average Financial Advisor client gains from working with them, including a 3.3% overall increased return. Listen to hear the details. You will want to hear this episode if you are interested in... Mastering basics — Davis Love, III: Grip, Stance, Alignment [1:22] How Advisors are paid and how the methods work [2:22] Why did Vanguard advocate working with a Financial Advisor [10:09] Specialties within the Financial Advising industry [14:13] Three basic models of how Financial Advisors are paid If you're going to be paying someone to work on your kitchen, you want to know how they are going to charge you. Will you pay a set price for the entire project? Will you pay them per man-hour worked? Will you pay no a sliding scale depending on the cost of materials? The same is true in the Financial Advising world. You need to know how your Advisor is being paid. There are three basic models you'll hear… Hourly rate consulting Commissions, based on financial products sold to their clients Advisory Fee Advisors, you pay a flat fee (usually around 1%) Each of these models has it's reasons and you'll need to make your own decision about which model you feel comfortable with. My philosophy is that the client's interests are the only interests that matter, so I work on an Advisory Fee structure. Can you do just as well on your own as you would if you worked with a Financial Advisor? Financial Advisors exist because the average person doesn't understand finances, investments, investment vehicles, taxes, etc. well enough to manage their own portfolio knowledgeably in all those areas. They may do alright in one, but not all. Vanguard's "Advisor's Alpha" whitepaper examined how much benefit the average Financial Advisor brings to the table and what ways that individual benefits his/her clients.  Some of the things discovered… Increased portfolio performance The average Financial Advisor charges around 1% for their services. Conventional wisdom tells you that if your portfolio profitability increased by only 1%, then you'd be paying nothing for the services of a professional advisor. That's true, but this is only one consideration to factor in. Professional retirement planning and management The average Financial Advisor should be helping clients with portfolio rebalancing, behavioral coaching, how to make tax efficient withdrawals during retirement, and more. These are things the typical do-it-yourself investor won't know how to do. 3.3% return increase When an Advisor is diligently doing all the things mentioned above for his/her clients, the average portfolio gains by 3.3%. That's a great benefit for any investor. All Financial Advisors should have the heart of a teacher It's amazing how many professional athletes, singers, business people, and more have coaches. Even those who are already successful continue to be coached and to learn how to hone their craft to greater effectiveness. I believe that's the role Financial Advisors should be playing in the lives of their clients. Coaching is a huge part of what enables investors and those planning for retirement to learn how to think about their money, understand how the various tools work, and how to leverage what they have in the most growth-savvy ways. When looking for an advisor, make sure you're asking the right questions so you can understand if the Advisor is willing to teach you as you go. Resources & People Mentioned Davis Love, III Get my free resources: https://retirementmadeeasypodcast.com/resources/ Vanguard whitepaper: The Advisor's Alpha Connect With Gregg Gonzalez Email at: [email protected]  Podcast: https://RetirementMadeEasyPodcast.com Website: https://StLouisFinancialAdvisor.com Follow Gregg on LinkedIn Follow Gregg on Facebook Follow Gregg on YouTube Subscribe to Retirement Made EasyOn Apple Podcasts, Spotify, Google Podcasts