The Value of a Fiduciary Advisor Reaches 4% in 2017
From: www.iris.xyz
Written by: Brad Jung | Russell Investments
Updating our annual “Value of an advisor” study for 2017 seems especially relevant given the spotlight that the DOL fiduciary rule has shone on all manner of fees in recent months. Regardless if the fiduciary rule is materially changed or not during the current delay, the fact remains that fees – and the value clients derive from them – are forefront in investors’ minds today. And yet, as in the past four years of this study, we have concluded that the value an advisor delivers to their clients materially exceeds the 1% fee they typically charge for their services.
Eight consecutive years of strong U.S. stock market performance (Russell 3000® Index) no doubt contribute to some of the popular skepticism about the value of advisors. When virtually all stocks are rising, it doesn’t seem hard to throw together a winning portfolio. However, that view completely overlooks the fact that the value advisors deliver rests in many places – not only investment selection. In fact, standard investment selection has arguably become one of the least valuable parts of an advisor’s value.
Instead, the technical and emotional guidance that only a trusted, human advisor (as opposed to robo-advisors, for instance) can offer to investors who are attempting to undertake the complex job of coordinating the accumulation, distribution and transfer of their wealth, is invaluable – particularly in an environment that is likely to deliver lower returns and higher volatility than investors have grown accustomed to recently.
Of course “invaluable” is a difficult sum to bill a client for, though, so at Russell Investments, we have attempted – this year again – to estimate the value of an advisor. In 2017, we assess the value of an advisor to be approximately 4.08%.
Particularly in periods of rising markets, it can be easy to underestimate the value of a disciplined rebalancing policy. But that’s a mistake. As the chart below shows, a hypothetical balanced index portfolio that hasn’t been rebalanced to policy weights since the bottom of the Great Financial Crisis on March 9, 2009 would look more like a growth portfolio today, exposing the investor to more risk than initially agreed upon.
