Vanguard Study: Advisors can add up to three percent in value

InvestmentNews Story

Vanguard recently performed a study about how advisors add value and in what categories they contribute.

Vanguard broke down 5 categories:

1) Investor Behavior:  There are several studies on this and they said that advisors can add up to 1.5% by preventing destructive behavior.  This number over a long enough period is likely accurate, but it would be tough for advisors to beat their chest over this coming off the 2013 market performance.  It is also a function of asset allocation.

2) Allocation:  Vanguard showed that asset allocation and placement/location can add up to 0.75% to a portfolio.  I am a strong believer in this attribute.  It is an areas where you can beat a rules-based tax code.  It is controlling the controllable and something that I focus on.

3) Expense ratio:  I am in the process of reaching one of my "train stops" in my process.  I revisit my non-taxable portfolios in February/August and my taxable in May/November.  I do have an exception process and a client need process as well, but having these train stops allows me to optimize client and portfolio management.  I am currently looking at portfolios with expenses between 0.1086% and 0.3112%

There are other considerations here:  turnover and tax efficiency.  Tax efficiency gets into the allocation attribute previously discussed.

4) Rebalancing:  Vanguard discusses how rebalancing can add up to 0.35% to your portfolio annually.  This is part of my "train stop" process.

5) Distribution Management:  Vanguard says this can add up to 0.70% to your portfolio annually.  This is a function of the tax code and something that I work hard on.