What is a Financial Planner Worth?

John C. Bogle

When someone considers the value of hiring a financial planner, they often struggle to understand what good financial planning might be worth?  Is it a dollar amount?  A percentage?  A promise of regular Denver Bronco tickets?  It’s a good question and one Vanguard investment research recently endeavored to answer.  Their findings?  About 3%.

The study notes the exact amount may vary depending on client circumstances and plan implementation, but Vanguard noted an advisor can add value by:

  1. Being an effective behavioral coach (potential value add: up to 1.5%)
  2. Applying an asset allocation strategy (potential value add: up to 0.75%)
  3. Employing cost-effective investments (potential value add: up to 0.45%)
  4. Maintaining proper allocation through re-balancing (potential value add: up to 0.35%)
  5. Implementing a spending strategy in retirement (potential value add (up to 0.7%)

This 3% number should not be viewed as an annual value-add, however.  It’s likely more intermittent.  Vanguard points out that the most significant opportunities to add value come during time of market duress or euphoria, when clients are most tempted to abandon their investment plan.

Each of us has our own unique personality and knowledge level about things financial.  So for some investors, an advisor may well be worth more than 3%.  It’s difficult to imagine, though, a scenario where someone couldn’t learn something from someone who spends every hour of their business day advising on finances.  In fact, in an effort to remove personal emotion from their own investing, I’ve even known other financial advisors and stock brokers who will hire financial planners to manage their own finances!

Calendar of Events

On Saturday, May 17, I’ll be volunteering with Boulder County Care Connect to help the elderly and disabled in Boulder county take care of their homes.  Please join me that morning as we take care of some general yard maintenance like mowing, raking, weeding and trimming.  Afterwards, all of the teams helping out will enjoy a free BBQ!  E-mail me if you’re interested in joining the Flatirons team.

Have a great May,

Steve Zakelj, CFP®

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