How an Advisor Adds Value



September 10, 2014


What is your advisor doing for you? Hopefully adding value to your investment returns, assuming you’ve got a good one. There are a number of ways an advisor can do this. But they are not necessarily the ways most people think.


The difference between a portfolio that gets you to your financial goals and one that doesn’t is probably not an advisor with a mystical ability to pick just the right stock or jump in and out of markets at exactly the right time. In fact, in a famous 1986 research paper, Determinants of Portfolio Performance (1986), authors Brinson, Hood and Beebower show that asset allocation is far more important than stock picking or market timing in explaining variation among returns to different portfolios. Asset allocation is the division of the portfolio among different types of investment assets such as stocks, bonds and cash.


Does that mean that once your advisor puts an optimal allocation in place, there is nothing more to do?


Not by a long shot. In a 2014 paper, Putting a Value on Your Value: Quantifying Vanguard Advisors’ Alpha, the authors found that an advisor can add an average of 3% to your returns after taxes and fees. That 3% comes from an advisor not only working with you to find the right allocation and the right level of diversification, but from ensuring you don’t pay too much for an investment or pay too high taxes on your returns. It comes from an advisor rebalancing your holdings regularly to keep them aligned with your strategy. Finally, it comes from an advisor who helps you stick with a strategy during market downturns, avoiding the buy-high-sell-low pattern that is the ruin of emotional investors.


As a PERSONALCFO who takes a 360-degree view of my clients’ financial lives, I would add that there are even more ways to add value to your investment returns, by making sure all the parts of your financial life—from investments to taxes to insurance to family expenses—work together like a well-oiled machine. That takes an educated and experienced professional who communicates regularly with you, fully understands your life and goals and works diligently on your family’s behalf. Do you have that?


At PARTNERSINWEALTH we don’t replace your existing valued advisors, we enhance their effectiveness. A PERSONALCFO serves as your single point of contact on all financial matters. He or she reports directly to you, and ensures that other advisors are not operating with “silo” mentalities, but are communicating and collaborating for your benefit. This gives you more control while simultaneously putting your mind at ease and simplifying your life. For more information, please contact Jim Waters, CFP®, at PARTNERSINWEALTH, 713.964.4028 or


Past performance is no guarantee of future results.