How financial advisors add value

Written by VentureXchange

April 16, 2020

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You only use an expert if you believe that they can add value to you. That said, you may not be good at social media, but you most certainly know someone who can help you with this. When it comes to financing, lots of people can look after their own financial affairs and that is fine. But there are also people who need expert advice. Financial advisors add value to your business and we will point out some of the key examples. Also, a lot of entrepreneurs are looking to spend more of their time focusing on running the business and prefer to pay someone to look after their finances.

According to one of the industry studies from Vanguard funds, clients who worked with a good financial advisor will receive on average 3% increase in the value of their portfolio each year. The majority of this increase will come during periods of heightened crisis and fear in the markets when advisors can step in and help their clients maintain an even keel and keep their long-term objectives in sight. That said, a financial advisor will add more value than what it costs on the long run.

How financial advisors add value
Vanguard Group

So, how financial advisors add value?

Industry studies showed that professional financial advisor can add on average 3% increase in value per year. That includes portfolio companies for the long term, depending on the time period.

The financial planning process includes a definition of your business goals. Moreover, financial advisors focus to understand your current business situation. Next, they identify the key steps to take to move forward.

Asset Allocations

Asset allocations are very important to create and balance a portfolio. All strategies should use an asset mix that reflects your goals and should account for your risk tolerance and length of investment time. A strategic asset allocation strategy sets targets and requires some rebalancing every now and then.

The first step in aligning someone’s investment portfolio with their goals is creating an investment policy statement. A policy statement determines how a person invests their money and the appropriate asset mix, referred to as asset allocation. It can be a very time-consuming, detail-oriented task to do without the assistance of a financial planner. That said, many don’t put as much effort into it. Vanguard estimates that the creation of an Investment Policy Statement and the resulting asset allocation can add value annually, but does not provide a specific amount.

Cost-Effective Implementation

More measurable value additions begin with a cost-effective implementation of one’s investment portfolio. Conscious financial advisors can add value and will help their client to utilize low-cost investment positions. That meets the criteria of their policy statements. This keeps more money in a person’s portfolio as less is passed through to a fund or money manager.


How does rebalancing work? Primarily, portfolio rebalancing safeguards the investor from being overly exposed to undesirable risks. Secondly, rebalancing ensures that the portfolio exposures remain within the manager’s area of expertise. 

In short, rebalancing is the act of adjusting portfolio asset weights in order to restore target allocations or risk levels over time.

While there is no required schedule for rebalancing a portfolio, most recommendations are to examine allocations at least once a year. The initial creation and implementation of a properly conceived policy statement and investment portfolio involve extensive attention.

Tax Management

One significant complicating factor in successful investment decision-making is navigating the impact of taxes. The utilization of balance between taxable and tax-advantaged accounts can be a daunting task. The cost of improper utilization is higher taxation.

Vanguard’s research notes that a 0% to 0.75% annual return value-add is possible with proper asset location, depending on the investor’s breakdown of assets between taxable and tax-advantaged accounts.

Financial planning provides additional value to your investment portfolio. Employing a financial professional saves you time. A priceless commodity on its own, but sound strategies can also provide you with tangible, real-world benefits.

To sum up, consider to hire an advisor and consult on your situation prior to making any major investment decisions. In this article, we provided you with some examples of how financial advisors add value. Past performance is not a guarantee of future results. The rates of return do not represent any actual investment and cannot be guaranteed. Any investment involves the potential loss of principal.

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